At the start of 2018, the mortgage lending rules in Canada became tougher than before causing homeowners who wish to renew or even apply for mortgage refinancing face stricter rules. Under the new rules, Canadians will have to prove that they are able to handle the higher interest rate compared to the existing rate that they are paying.
The new mortgage rules also mean that even those who have already paid a 20% down payment need to undergo a stress test to determine if they are qualified for renewal or refinancing. The good news, however, is that the mortgage rules only apply to financial institutions that are federally regulated. Private lenders are not affected by the new rules.
Effects of New Rules in Mortgage Refinancing or Renewals
Like it was mentioned before, the new mortgage rules can affect those who are seeking to apply for mortgage refinancing. Here’s how:
- Stress test. Stress test is typically applied to first time home buyers to determine their qualifications. For those who want to renew or refinance their mortgage, this rule will still be applied to ensure that you are capable of paying your mortgage. If you are planning on applying for mortgage refinancing or renewal, you will need to prepare yourself to pass stricter stress test.
- Loan to value ratio. Another area that may make mortgage refinancing a bit more challenging is the loan-to-value(LTV) ratio which measures the mortgage value as percentage of overall value of the property. If you are applying for mortgage refinancing, the major banks in Canada will ensure that the LTV ratio is adjusted according to market conditions. This means that the higher the LTV ratio is the higher the risk of the loan will be. You will only be able to refinance your mortgage if the equity of the value of your property is up to 20%. Your application for mortgage refinancing will not be considered if this condition is not met.
How to Get Better Mortgage Refinancing
Homeowners who are considering applying for mortgage refinancing are being attacked on two fronts: higher interest rates and tougher terms. In order to get better deals, you will need to do more work on getting the best available terms and rates when you apply for refinancing.
For those whose renewal is coming up, you should start shopping around as much as possible to be able to negotiate with potential lenders.
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