In an effort to cool the consumers appetite for debt in this current low interest climate, the Fed’s have further tightened the screws on Bank lending. The Canadian Government’s “Financial Stability Board” has published new guidelines for underwriting mortgages. Following is a summary of the proposed changes which may take effect by September 2012:
- Lines of credit should not exceed 65% of the homes value. While a customer can still borrow 80% LTV, at least 15% will need to be in an amortizing segment. Existing clients may be grandfathered but there will be some cases as it relates to structural changes in an existing loan plan where the new rule may apply.
- For debt service coverage (TDS) at a minimum. the qualifying rate for all variable interest mortgages regardless of the term and fixed rate mortgages with a term of less than 5 years should be the greater of the contracted mortgage rate of the five year benchmark rate (Bank of Canada).
- GDS Calculations will require supporting documents (tax, utility bills, etc) or clear and consistent benchmarks that adequately assess these additional costs.
- Banks will be required to clearly define “non-conforming loans”. This may include some forms of equity, low documentation etc. In these cases LTV should not exceed 65%.
If you are contemplating taking a HLOC at 80% LTV now is the time to get your application processed before the new guidelines take effect. You may not need to use all the money, but better to have access to it and not use it, than to be clamped down to 65% LTV.
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