If you’re interested in refinancing your mortgage, it’s better to act sooner rather than later.
Why? Let’s break down the reasons.
- New Canadian mortgage regulations are making it harder to access financing.
On January 1, 2018, the Canadian government implemented new mortgage rules onto federally-regulated lenders (such as banks). These lenders now have to implement a mortgage “stress test” on potential homebuyers, and those seeking mortgage refinancing.
What this means is that if you were to get a new mortgage, or refinance an existing one, a federally-regulated lender would need to test your ability to afford the mortgage against a higher mortgage interest rate.
If you had a mortgage rate of 3%, they might have to test your ability to pay against a 5% rate, for instance. They are also required to take your total housing-related debt (Gross Debt Service ratio – or GDS) and your total overall debt (Total Debt Service ratio – or TDS) into account.
However, non-federally regulated lenders, like credit unions and private mortgage lenders, are not subject to the mortgage stress test regulations. Unlike big banks, they aren’t required to stress test your mortgage refinancing or take your GDS and TDS into account – but that could be changing.
Earlier this year, a Reuters article cited three unnamed federal sources who said that the Canadian government is considering extending the stress test regulations to private lenders. This means that non-bank mortgage lenders would be required to use the same measurements for extending mortgage financing as the big banks.
Canadian Finance Minister Bill Morneau denied the rumours, but the possibility is still there – and if it does happen, you’ll want to be prepared. Which is reason #1 why it may be better to seek mortgage refinancing now, rather than later.
- Property values are declining.
Reason #2 has to do with value of your property. If you’re refinancing, you likely want to access the most equity possible.
Unfortunately, home prices are rising slowly, perhaps due to the impact of the mortgage stress test and Canadian interest rate increases. And less homebuyers are able to access the market.
More than 100,000 Canadians have been kept out of the housing market due to the stress test regulations, according to Mortgage Professionals Canada.
If you’re thinking of refinancing your mortgage and this trend continues, it might mean that your property value could drop, too. And if private lenders are subjected to the same regulations, it could mean even less people entering the housing market – and even further property value declines.
- Mortgage rates are rising.
Five-year fixed rate mortgages reached their lowest point in late 2016, according to Rate Hub. Since then, mortgage rates have gone up about 0.5% per year. At the beginning of 2019, the lowest fixed rates were around 3.29%.
Variable mortgage rates are also on the rise (and subjected to Canadian interest rate increases).
“Even with discounting, the best five-year variable mortgage rates are still up about 0.75% since this time last year,” says Rate Hub.
The moral of all this is that if you’re considering mortgage refinancing – don’t wait.
At DebtCare Canada we offer first mortgages, second mortgages, home equity lines of credit, and more.
Contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.
Refinancing your mortgage can be a great way to consolidate debt and ease your financial standing, but there is one important consideration to make: the timing.
The past year has been a rocky one for Canadian homeowners. The Bank of Canada announced interest rate increases starting in July of 2017. Since then, the interest rates have increased three times, going from 0.5 per cent to 1.25 per cent. While all this was happening, Canada’s new mortgage rules also came into effect, starting January 1, 2018. These rules add an additional stress test onto uninsured mortgages (those with a down payment higher than 20 per cent) and also put added restrictions onto lenders.