How to navigate the new regulatory environment at different life stages
Many Canadians view homeownership as a sound investment idea. Regardless whether they’ve just bought a home, are looking to renew a mortgage or want to leverage their home equity for retirement plans, experts recommend paying attention to the market. istockphoto.com
Whether they are millennials, boomers or Generation Xers, many Canadians may be concerned about the potential impact of the new rules. We asked three mortgage professionalsfor their advice.
MILLENNIALS AGES 19-34
“When I do mortgages for my clients, I show them what will happen with their payment if these historically low rates are higher when it’s time to renew. Are they going to be able to afford it? A lot of people are surprised, especially millennials, because 2.5 per cent is normal to them. For me, it’s always about educating my clients so they can plan for their future.
“When we go through the signing process and talk about what the rate and amount will be at renewal time, we also encourage our clients to take advantage of the pre-payment privileges that are available. Even if you can only afford $25 extra a month, every little bit helps.
“The new rules also limit amortization options. In the past, if rates were higher at renewal, we could refinance and extend the amortization if there were enough equity. But because 30-year amortizations are no longer available through the monoline lenders, it’s making it harder and harder. I believe prices will come down, but in the meantime, I’m sad for first-time homebuyers in Saskatoon, where the average house price is $316,000. Someone who would qualify for $350,000 at current rates before the new rules now qualifies for just $272,000.”
Shawna MacDonald, AMP, is a mortgage broker with The Mortgage Associates in Saskatoon
GEN-X AGES 35-50
“The thing to keep in mind is – don’t panic. For people who currently own their home, I do not expect to see huge changes. If they’re making their payments, we don’t really expect lenders to go through a re-qualifying process when it’s time to renew. It would be a huge administrative challenge for the lenders, cost- and time-wise.
“For people who have had a change in their situation – one spouse is on maternity leave or has started a small business so they don’t technically qualify under the new rules – we don’t expect lenders to say, ‘You’ve been making your payments, but we’re going to foreclose on you.’ As long as you aren’t looking to change anything fundamental with the mortgage at the time of renewal, we don’t expect a lot of challenges.
“For homeowners who want to change the amount of their mortgage, the new lending guidelines are going to restrict the amount of borrowing power that they have if the mortgage will be insured. This is a competitive advantage that the charter banks have been handed, because they don’t have these restrictions, and one of the potential risks of these changes is that borrowers may face penalties to move over to a lender that has less restrictions.”
Jamie Moi is a mortgage broker with Dominion Lending Centres - West Coast Mortgage, serving the Metro Vancouver area
BOOMERS AGES 51-69
“Most boomers are second- or third-time homebuyers, so this segment of the market is unlikely to be affected by the recent changes in terms of qualifying for a mortgage. However, I expect the recent regulatory changes to slow the market, which may impact boomers selling their family home and downsizing to a condo or a bungalow. There are buyers out there who will have about 20 per cent less to spend due to the new rules.
“For those facing renewals, stress-testing your payment is always important. It doesn’t matter what it says on paper or what stage of life you’re at – you have to be comfortable with your payment. Factor everything in: Do you go out for dinner once a week, or do you eat at home? Do you go to the movies or rent movies online? Look at your entire lifestyle.
“Especially if you’re close to retirement or plan to work less, you want to be sure you can afford your home if rates go up. I coach my clients to pay as much as they can afford, because while the rate is low that extra money is going towards the mortgage principal. Then there won’t be as much payment shock if rates go up.”
Paula Roberts, AMP, is a veteran mortgage broker with the Roberts Group - Dominion Lending Centres in Markham, Ontario
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