SCRIPT FROM VIDEO:
In this video podcast, I plan to cover the “newest” proposed mortgage rules
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Yes, you heard that correctly, they actually trying to bring in more rules. To be clear, this is just being proposed but is very likely happening. OSFI, aka The Office of the Superintendent of Financial Institutions, announced the proposals to help mitigate Canada’s residential mortgage market. “Unprecedented house price increases have been accompanied by record levels of household debt”. OSFI’s three proposals include:
#1 Loan-to-income (LTI) and debt-to-income (DTI) restrictions
#2 Debt service coverage restrictions
#3 Interest rate affordability stress test
The Loan-to-income (LTI) and debt-to-income (DTI) restrictions would involve measures that restrict mortgage debt or total debt as a percentage of borrower income. Now, not to be confused with Loan to Value or LTV which is the mortgage loan percentage against the property value. OSFI notes an LTI of 450% is typically considered “high” and has been on the rise since the start of the pandemic.
Looking at the graph, it is on the decline so I am not too concerned here. Average incomes are not remotely keeping up with home prices, what did they expect would happen? How about working on fixing the housing crisis? OSFI is therefore proposing a “lender-level” limit that would restrict mortgage providers to a certain volume of loans that exceed their “prudent” threshold.
Debt service coverage restrictions would involve measures that restrict ongoing debt service obligations as a percentage of borrower income. For example, (principal, interest and other related expenses. Lenders must currently employ Gross Debt Service (GDS) and Total Debt Service (TDS) limits on insured mortgages, which are currently 39% and 44%, respectively. Insured mortgages are generally those with a down payment of less than 20%. It is possible to still have an insured mortgage with greater than 20% down but is not common.
At present, GDS & TDS restrictions are not enforced by OSFI but most lenders still follow similar strategic limitations. Additionally, OSFI said it could limit lenders to a certain volume of loans with high debt-service ratios. So they are going to cut off the supply of mortgages… really?
Interest rate affordability stress tests. OSFI head Peter Routledge told the Globe and Mail that borrowers are currently in good shape and that these proposed changes are about ensuring it stays that way. The big question is, do we really need this?
- 99.86 percent of Canadians are current on their mortgages
- We are at an all-time low mortgage arrears rate
Want to hear my option? Stop making it harder to get a mortgage which is used to buy a growing asset. Instead, go after unsecured credit providers. Banks, credit unions, etc are handing out credit cards like candy. I bet I could get $100,000, easily, today in credit cards if I wanted. It of course would come at the current rates which average 20-23%. The monthly payment on that alone would be around $2,000. None of the proposed changes will be finalized until after OSFI’s consultation period, which is now open until April 14, 2023.
Want to hear some good news? At the time of this recording, the bond yield dropped to its lowest level in 6 months showing a further indication that fixed rates will start to decline further. This will cause a boost in real estate sales.
Are you still sitting on the fence? Your butt will get sore if you sit too long!
What do you think about this? I would love to hear your opinion. Also, if you are interested in becoming a realtor and joining our team at eXp. We have one heck of a program for new and experienced agents.
That’s all for this episode, don’t forget to pick up a copy of my best-selling book on Amazon, Rockstar Real Estate Investing if you haven’t yet and we are here for your questions at any time.
See you again soon, thanks.