What going from 30 years to 25 years means

Here's is a rough idea of what going back to 25 years as opposed to 30 years will do in regards to purchase power and payments.

This is based on the assumption of good credit and no outside debt.

In the past four years my average mortgage amount is roughly $291,000 (this is kind of the norm south of the Fraser)

You would need an income of $48,500 to qualify for this amount of a mortgage. The payment based on today's 3.09% would be $1,241 with a 30 year amortization.

A 25 year amortization will need an income of $53,000 to qualify for this same amount. It will also increase your payment by roughly $150/m

If you have the income of $48,500 you would now only qualify in the amount of $259,000 which means, $32,000 less of a home.

I'm not entirely for or against the reduced amortization. There's pro's and con's to both and honestly when I started out, all we had was 25 years! Yes, I'm starting to become one of the seniors.


Please note: the above numbers are not perfectly accurate however, are deemed to be very close. Everyone is slightly different and there are other variances that can change the numbers i.e. Insurance premiums, actual property tax payments and strata payments etc.

OSFI Toughens Mortgage Underwriting

OSFI’s final mortgage underwriting guidelines are out, sooner than expected.
There are significant changes on the way for a variety of borrowers. TD’s chief economist Craig Alexander told BNN that the impact of these guidelines is equivalent to “well over a percentage point (increase) in mortgage rates.”
However, these guidelines are less concerning than OSFI’s original draft (which proposed things like requalification on renewal). Moreover, in many ways this news isn’t as market-shaking as today’s Department of Finance announcement.
That said, here is what’s changing (Note: this applies to federally regulated lenders only):

• HELOCs:  The maximum loan-to-value on a HELOC will drop from 80% to 65%. That will sting borrowers who leverage HELOCs for productive purposes (e.g., as substitutes for open mortgages, or as a low-cost borrowing source for income-generating investments or small business). However, lenders can still provide a 15% amortizing mortgage on top of a HELOC, for 80% loan-to-value total. OSFI tells us: “Existing HELOCs are not affected, but future offerings are subject to the limits.”
• Qualifying Rates:  The qualifying rate is being toughened for conventional mortgages. For variable rates and fixed terms less than five years, it will be “the greater of the contractual mortgage rate or the five-year benchmark rate published by the Bank of Canada.” This will push a small number of borrowers into 5-year fixed mortgages because they won't qualify for shorter terms.
• Stated Income: Going forward, all self-employed borrowers must provide “reasonable” income verification (e.g., a Notice of Assessment). Most lenders already have such policies. It appears that true “no-income documentation” stated income mortgages are officially a thing of the past at mainstream lenders.
• Down Payments:  “Cash back should not be considered part of the down payment,” says OSFI. This effectively eliminates 100% financing, and is one of the most common sense guidelines of them all.

There are also other changes that may affect non-prime mortgages. We’re awaiting clarification on those before commenting further.
Federally regulated lenders have until “no later than fiscal year-end 2012” to comply with these guidelines. That ranges from October 31, 2012 for major banks to March 31, 2013 for other institutions). However, OSFI expects them to comply sooner if possible, so we may see some of these changes within a few months, if not weeks.
There’s no telling yet if provincial regulators will impose the same guidelines on the lenders they regulate (like credit unions).

Information directly from http://www.canadianmortgagetrends.com

Canadian Home Income Plan - CHIP

So, what is CHIP, why CHIP, and why now?

What is CHIP?

• The Canadian Home Income Plan (CHIP) is a reverse mortgage giving seniors access to as much as 40% of their equity, with NO PAYMENTS for as long as they live in the home.  Instead of paying monthly, the interest is simply added to the mortgage balance that becomes due when the home is sold.
• CHIP is designed for clients that are 55 or older, lack cash flow, and don’t want to move. 

Why CHIP?

• There is no credit check, and no debt servicing.  The approval is simply based on the client’s age and the property. 
• There are many reasons to take a CHIP mortgage: 

-A traditional mortgage requires a monthly payment that many simply can’t afford, so they can’t access their equity without selling the home they love.  Even an LOC will eventually run    out of the ability to pay itself, still leaving the client with a payment they truly can’t afford.

-One spouse has passed away, leaving the survivor with the same monthly debts, but half the monthly income.  CHIP can give the cash flow needed to keep on going.

-The money can be used for anything: Investing to increase cash flow, paying out of foreclosure, paying property taxes, debt consolidation, early inheritance so they can enjoy giving the money without the worry of paying for it, higher quality of life, etc.

• With a 15 year average home appreciation of 6% in Canada, and the reverse mortgage typically going no higher than 40% LTV, history has shown that equity erosion is really not something to be worried about.

Why now?

• CHIP received bank status in Oct 2009, lowering cost of funds, and allowing the product to be offered at a much more reasonable interest rate.  CHIP offers, variable, 6 month, 1, 3 & 5 year terms.  Call or email for details.

• The baby boomers are reaching retirement years, and many have arrived with more debt and less income than they had planned for. 
• 84% of seniors want to stay in their home, but with limited cash flow, monthly debts, and a dwindling retirement fund, many are forced to sell the home they love and downsize to live.
• Ever tightening mortgage qualification rules are making it harder for people to access their equity, so no credit checks and no debt servicing makes this an appealing product.

OSFI nixes requalifying guideline

From CAAMP’s mouth to OSFI’s ear.  The federal regulator issued a letter Wednesday clarifying its position on re-qualifying borrowers at renewal  -- effectively maintaining the status quo and confirming CAAMP's understanding.

“The following provides a brief description of OSFI’s decisions on key issues, which will be reflected in the final Guideline,” writes the regulator in a letter sent to federally regulated financial institutions Wednesday. “Re-qualification at Renewal – current practice regarding residential mortgage renewals has served FRFIs well. OSFI agrees, for example, that having a good payment record is one of the best indicators of credit worthiness. OSFI, therefore, expects that FRFIs themselves will remain responsible for deciding what level of review to place on borrowers’ qualifications at the time of renewal.”

The letter confirms the message coming from CAAMP CEO Jim Murphy, the association leader telling MortgageBrokerNews.ca last week that OSFI was prepared to hold its fire on the most contentious component of its draft guidelines for mortgage underwriting.

At the same time, the message confirms that the regulator will uphold its guideline reducing the
the maximum loan-to-value ratio for HELOCs to 65 per cent.

Still, brokers appeared most concerned about the possibility of lenders having to re-qualify clients at each and every renewal.

The OSFI decision may leave some room for lenders to do just that, however.
"FRFI renewal practices should be articulated in internal policies governing their underwriting of residential mortgage loans," writes OSFI. "FRFIs, however, will be expected to refresh the borrowers’ credit metrics periodically (not necessarily at renewal) so that FRFIs can effectively evaluate their credit risk.”

http://www.mortgagebrokernews.ca