Episode 136 Transcript – New mortgage rules

You’re live here with Jessi Johnson. I’m getting a lot of emails and phone calls and tweets and text messages about the new mortgage rules which are scheduled to change on April 19th. Now there’s three major changes that are taking place. I’m just going to explain to you how they would or could affect you. The first one is with regards to qualification. In the past if a client was a bit shy on qualification for the ideal 5 year rate we would position them in a mortgage providing they weren’t overleveraging themselves maybe on a one, two or three year rate or a variable rate product. What this allowed us to do is, it allowed them to qualify for the mortgage just on a lower rate. Things have now changed. After April 19, 2010 everyone must now qualify for a 5 year rate. Here’s where the confusion lies. The government has yet to clarify is, is that a 5 year discounted rate, is that a 5 year posted rate, is it prime plus point 2? We don’t know yet so pay attention to the blogs or my tweets and I’ll be able to educate you once I get educated myself. The next major point is with regards to refinances. In the past refinancing could go up to 95% loan to value. Loan to value is the equation of the existing liability or mortgage against the value of your home. They dropped that down to 90%. Is that really a big deal? No because very rarely did I actually take advantage of that 95% refinance and since the recession hit about a year ago most lenders have pulled away from that anyways. Really it’s nothing new. The last and final point here is with regards to revenue properties. If you go to my website under the Vancouver News section I actually have this in detail as well. What’s happening now with revenue properties is you have to have 20% down. In the past X amount of years ago that was a regular qualification but they changed it, they were allowing you to go as little as 5% down. I would never allow a client to do 5% down anywhere near Vancouver because it wouldn’t remotely cash flow and they would get themselves in a lot of trouble. However, I know there are some certain properties that are out in the boonies that do have high rental income and that may be a lucrative transaction. Regardless, this is a big deal. When they first announced this change it was supposed to be on speculation property only. Speculation, the concept is when you buy a property, you’re looking to make money off the equity growth not necessarily the rental income and pay itself down. What people were commonly doing was purchasing presale with the “speculation” that it was going to grow in the next two or three years and then flip it before they actually moved in and take all the equity. Don’t get me wrong, that was very lucrative for many, many people in the past X amount of years however is it a lucrative transaction? No, not anymore because what’s happening is everyone is doing that so when the properties are completing everyone is competing with each other trying to sell their properties and causing a lot of problems. Anyways, they are not doing it on speculation anymore. Now it is strictly revenue property, if you’re buying rental property, you have to have 20%. It’s a bit tough. The trick is to get a mortgage commitment in place before April 19th and you’re fine. Hope that makes sense. If it doesn’t give me a call, drop me an email, twitter. You can reach me at www.jessijohnson.ca or www.firsthomeinfo.ca. Remember to own your life. Have a great day. Bye.