See below an update on new B-20 Lending Guidelines
As expected the updated “Stress test” will be applied to all mortgage borrowers(borrowing from any lender beginning January 1st of 2018). It has been clarified that the stress test rate will NOT apply for a mortgage RENEWAL if staying with the same lender.
Data Release: OSFI extends ‘stress test’ to all new mortgages
• The Office of the Superintendent of Financial Institutions (OSFI) released revised “B-20” guidelines for residential mortgage underwriting at federally regulated financial institutions. As was widely expected, the updated ‘stress test’ will be applied to all new mortgages beginning in January 1, 2018. Currently the test applies only to mortgages requiring insurance (i.e. those with down payments less than 20%).
• This change requires that borrowers qualify for mortgages at the greater of the Bank of Canada’s five-year benchmark rate or the contracted rate plus 200 basis points. For reference, as of this morning, the Bank of Canada posted rate was 4.99%(Nov 1st). It should be noted that OSFI will not apply the more stringent requirements in the case of a mortgage renewal.
So in January all borrowers, with less or more than 20% down payment or equity in a home will be qualified equally under the new rules if borrowing from a federally regulated financial institution.
This is not good news for anyone…
As January has seemed to fly by, I thought I would pass along a few ideas on saving money and paying less interest.
Awareness is the key. You would be shocked how many people I speak with who don’t know what is owing on their mortgage and more importantly what is owing on their other debts. Credit cards and Lines of Credit (secured and unsecured), being the biggest headaches/threats to our financial independence. It is likely that we feel better not knowing how much we owe, where in fact knowing is the first step towards getting out of debt.
Your 2016 End of Year Mortgage Statement will be coming to you soon- check your current balance and be aware of how much you paid in principle and interest last year. Force yourself to make one extra payment a year, and it will save thousands in interest over the term of the mortgage.
If you are currently paying your mortgage MONTHLY, change to an accelerated bi-weekly basis, this alone forces the extra payment each year without you really feeling it.
On the topic of interest cost, if you are carrying a balance on CREDIT CARDS, look at a monthly statement on them as well. The banks now must disclose the length of time in years to pay the card balance to zero, with making minimum monthly payments.
It can show a depressing length of time! So if you’re carrying card balances, work on those and forget about paying any extra against the mortgage. Try and automate the monthly credit card payment with a set larger amount. You will get used to it, and in no time, start to see the balance start to drop. The high interest rate of credit cards, should make them the priority over paying extra principle on a mortgage.
Regarding savings, start with looking at who you do your banking with and what your monthly account and cheque fees are. Monthly bank account fees can easily be from $10 to $50 dollars. A set of cheques alone can be $30.00.
For the last 15 years or more I have dealt with Presidents Choice Financial for my banking. There are NO BANK ACCOUNT FEES, and they give you your cheques for FREE. You can access your money either online(an easy to use on line platform) or from an ATM at any CIBC bank branch, Loblaws or SuperStore. If you don’t want P.C. Financial, then take a look at Tangerine. It is owned by Scotia Bank and runs on the same concept as P.C does- NO-FEE BANKING. They also offer high interest savings accounts.
I believe the most reliable and easiest way to save money is to automate the process. Pick a monthly amount, anything is better than nothing, but make it a reasonable amount. Then schedule for that amount to be automatically transferred out of your everyday chequing account into a savings account that you don’t have easy access to. With the transfer of money into savings done for you, you won’t even miss the money. Start today, and save for that well-deserved holiday or RRSP contribution.
If nothing else, take that change out of your pocket or purse each day and throw it in a bottle. You will be amazed how quickly it adds up. Remember that a dollar here and there is always better in your pocket than someone else’s, especially the big bad banks!
So that’s my two “sense” on paying less interest and saving money!
I would love to assume that in a perfect world, and in all lines of work, you would have customers who use services from professionals, and always have extremely satisfying experiences. You would think that having a satisfied client is what keeps people coming back, and therefore all professionals in business would want that result. But in reality, there are bad apples in every business, and with that comes dissatisfied clients.
So when a friend asked me about who governs my business, and where does someone who has had a bad experience go to report it, I figured this was a great opportunity to let people know.
The Financial Services Commission of Ontario (FSCO) licenses mortgage brokers, agents, brokerages and administrators in Ontario. The “Mortgage Brokerages, Lenders and Administrators Act” requires all individuals and businesses in Ontario who carry out mortgage brokering activities to be licensed with FSCO.
See the site link below…
In the center of the page under “How the mortgage broker law protects you”, and “Resolve a complaint about a mortgage broker, agent, brokerage or administrator” you will find explanations about the responsibilities and rules governing mortgage professionals. You will also find the procedure for filing a complaint regarding a mortgage related transaction. You can even search the name or licence# of a mortgage agent or broker on this FSCO site to confirm that they are in good standing.
As a mortgage professional, we are licenced as either a Mortgage Broker or a Mortgage Agent.
A mortgage broker, requires more educational requirements than an agent, longer work experience, and is able to apply to operate their own brokerage.
A mortgage agent is only licenced to operate through a mortgage brokerage.
If you ever have a complaint, your first call or letter should be to the owner/operator of the brokerage that your mortgage professional works under. The owner of the brokerage (the broker of record), has in his/her interest to resolve any complaints of the agent or brokers who work under him/her, as it is their licence that could be impacted by his/her employee’s actions.
If you are not satisfied after dealing directly through the brokerage , your next step would be to make the complaint directly through FSCO.
The wrong or incomplete advice given to that friend of mine, I’m afraid can still happen today. Even with the stricter guidelines of disclosure today, if the mortgage professional chooses not to follow them, trouble can arise. The reality is, as in her case, she is told one thing in a general statement, not in writing, and the end result becomes different and costly. Someone’s life impacted by one bad apple.
So in summary, all I can say again is to read carefully what you sign, and if concerns about anything, get it in writing.
Most importantly, ask questions if you don’t understand what you are told.
If you are using a mortgage broker or agent, google them, and search for reviews on the individual. The likelihood is greater that if you have good reviews on a business or individual, your experience should also end well.
Our job is to provide a mortgage service that always ends with a positive experience for you the borrower. Then and only then will you come back personally or refer us your friends and family.
As always, feel free to call and ask questions “almost anytime” on my cell, 613-222-2624.
I thought I would remind everyone about the cost of penalties when breaking a mortgage during term. A lot of people think that one lender is the same as the other, but you can be terribly wrong with that mindset. The Globe and Mail published an article called “The Hidden Trap of Mortgage Penalties” and is worth reading. It is likely a wake-up call to most.
When you go to one of the Big Five banks web sites and look at their mortgage rates, a 5 yr fixed term with most is 4.64%, where as if you go to some of the other trust and credit Unions(we call them Mono Line lenders),a posted 5 yr fixed rate can be as low as 2.69%. As the article points out, it is these “posted” rates that can dramatically affect your penalty when the IRD(Interest rate differential) part of the penalty formula is used.
Just another reason you should shop around and talk to a good mortgage broker(hopefully me 🙂 ) and NOT just your banker. Have a mortgage question? Please feel free to drop me a line anytime, 7 days a week.