You can’t go anywhere these days without hearing about the mortgage rules imposed across the nation last year. But with those rules came some debt ratio standards that weren’t exactly clear. Or not as clear as CMHC would have liked, anyway. To that end they’ve now defined those standards even more, and that could make it even harder for some to get a mortgage.
On June 27 CMHC announced, “Under current practice CMHC stipulates standard formulas for calculation of debt service ratios but has not been specific as to how each key input is to be treated.” As such, they’ve now released more guidelines that will be put into place for insured mortgages beginning December 31, 2013. They are as follows:
- Variable income – things like tips, bonuses, and investment income – will now have stricter guidelines. While borrowers can currently use an especially lucrative year to get a mortgage, now lenders will have to use an amount that is no more than the average income of the past two years.
- Borrowers who own non-owner occupied rental units will no longer be able to use their gross rental income to apply for a mortgage. Doing it this way allows borrowers to take on mortgages even when the costs of keeping those units are excessive. Now those borrowers will need to deduct these costs (utilities, etc.) from their rental income, or include them in their Total Debt Service ratio.
- Currently those who can’t get a mortgage on their own can find a guarantor and use their information (they’ll also be responsible for the loan.) However at the end of the year, this information can only be used if the guarantor plans on living in the home and is the spouse of the borrower.
- Interest-only payments can no longer be calculated for unsecured credit lines and credit cards. Now, “no less than 3 per cent of the outstanding balance” can be used. In addition to that, the credit history of the borrower, as well as their past borrowing behaviour, must also be calculated into the debt ratios.
- For costs that vary, such as heat, lenders once used a flat rate such as $100 per month. However, now they must obtain actual records pertaining to the heating costs of any one property. If no history is available, the estimate must be “reasonable…taking into consideration factors such as property size, location, and/or type of heating system.”
There they are, as presented by CMHC at the end of last month. The question for borrowers is, how does it affect them? Tomorrow, that’s what we’ll look at.
