More mortgage changes are commented on, particularly, those for self employed people:

Transcript of Video Blog:

Hi everybody, Rowan Smith at the Mortgage Centre. So once again, there’s been another rule change that’s come down and this one deals specifically with self-employed people.

I have heard statistics, and I have nothing to back this up, but I have heard statistics that over 60 percent of the people in BC are self-employed or have some self-employment income. So, if that’s the case, this rule is going to effect a lot of people.

Previously, if you had a very good credit rating, and I mean pristine. You were able to put five percent down and if you were self-employed, you could state your income. You did not have to document it. You did have to document that it was reasonable, that that number was not just something that you fictitiously pulled out of the air; because that would be mortgage fraud.

You had to document simply that you had a business for the last couple of years, or that you’ve been in the field for a couple of years. You can’t do five percent down under that program any more. The fact is on April 19th, you are only going to be able to do 90 percent financing. You will require 10 percent down as a self-employed person, if you can’t document your income under traditional rules.

Now how many of these deals are out there and how many people are affected by this? Generally, self-employed people, I would say, they’re usually putting down 10 percent or more down. I did not get a lot of five percent down self-employed stated income programs.

I have seen, I can count on my hands in the last 40 years, so I don’t think that this change is necessarily going to affect a lot of people in the market as a whole, but it will bring some stability back again. This is the whole purpose of the government’s changes, is to prevent speculation and there has been a lot of it in the last while and some of these stated income programs have certainly been taken advantage of by some banks, lenders, and brokers.

So, if you have any questions about stated income, or if you’re self-employed and you’re thinking of buying a place and you’re not sure if you qualify under the new guidelines, please give me a call. It’s Rowan Smith from the Mortgage Centre.

Hi everybody. It’s Rowan Smith with the Mortgage Centre. The last couple weeks we’ve seen a lot of announcements about mortgage changes, rules changes, and how people are going to be qualifying for mortgages going forward, especially the variable rate. And that’s one of the biggest changes and it’s something I wanted to cover today and talk about was how are variable rate mortgages going to be affected? How are people’s ability to qualify going to be affected under the new rules?

Transcript of Video Blog:

So the government has officially announced now that the rate they’ll be using to qualify people for a variable rate mortgage is going to be the five year posted rate. Presently, that’s 5.39%. Compare that to currently, with a lot of the non bank institutions and the non traditional institutions.

One of their biggest abilities to gain market share has been that they qualify people for the variable based on many times ahe three year discounted rate or a five year discounted rate. There’s various policies all over the place that vary from lender to lender to lender. Now we as brokers took advantage of that by finding the best rules that fit our client and so getting the most amount of mortgage that we could.

Now going forward, that won’t be the case any longer. The government has officially leveled the playing field. So anybody offering a variable rate mortgage will have to have to qualify at the new five year posted rate. Well, not the new posted rate, but the existing posted rate.

So let’s see what kind of difference that will have. If previously under the old guidelines, if you made $60,000 a year and just assuming that the average taxes and fees and stuff, and assuming no other debts, you’re able to qualify for $460,000 of mortgage for a variable. Under the new guidelines, that’s reduced to $364,000 that you are able to qualify for.

That’s a reduction of 20%, almost 21%, that you’re no longer able to afford. So if you’re looking for a property that is worth $800,000 in today’s market under today’s rules fast forward six months and the number of people who qualify for that is going to be dramatically reduced.

Everybody is going to be qualifying for 20% less than they do today. Now this may bring us long term stability to market, but I am going to bet that there’s going to be some growing pains from the transition of the old rules to the new.

Now when is that going to take effect? Well, April 19th is the date that this “law” as it were, however, some other institutions may move to this sooner, often they do. That’s the deadline when everybody has to be on board with this system. A lot of institutions already use this rule. Some of the big banks, the HSBC and whatnot, they already qualify you based on a posted rate.

Now they already use a three year posted rate, in many cases, and there is a big difference between a three and a five year. The whole purpose of this is to determine what can somebody afford now, and what can they afford if rates should rise. It builds in a safety net, it builds in a budget builds into the budget that rates may increase and that payments may increase and this may be better for us in the long term.

In the short term though, if you are trying to stretch to get the maximum amount of mortgage that you can, perhaps because the bank doesn’t accept your income, or you’re on a relatively new job, or there’s mat leave, or something like that coming up, you need to get on this now to qualify and purchase now. For the Mortgage Centre, I’m Rowan Smith.