You may have heard about B-20 in the media in recent weeks. It’s not the name of Canada’s newest bomber plane but rather a new mortgage lending guideline for all federally regulated financial institutions to follow. It has already changed the Canadian real estate landscape by making it more difficult than ever for Canadians to access mortgage funds. Do you know how B-20 will affect you & your mortgage?
Nothing stays the same forever. Especially in real estate. Since 2006 Canadians have benefited from laxed lending policies which allowed 100,000s of borrowers to realize their dream of home ownership. Mortgage lending rules in part are to be credited for the incredible expansion of the Canadian real estate market in recent years. But the days of easy lending are numbered as new rules, regulations and policies are being introduced. Partly to slow down what is considered to be an overheated market, partly to protect us from burying ourselves in debt and partly as a political move to show Canadians that their government took measures to prevent a nation wide housing/debt melt down.
WHAT IS B-20?
Earlier this year the Office of the Superintendent of Financial Institutions (OSFI) took over the role of managing Canada Mortgage & Housing Corporation (CMHC) from the Department of Human Resources. OSFI wanted to show the industry that they meant business and soon introduced a series of recommendations and procedures to govern mortgage underwriting guidelines of all federally regulated financial institutions.
The recommended guideline, Residential Mortgage Underwriting Practices and Procedures B-20 (<– That’s the official name), is designed to set the expectations for prudent residential mortgage underwriting. All federally governed financial institutions are expected to adapt their lending guidelines to satisfy B-20 by the end of this year.
HOW WILL B-20 AFFECT YOU AND YOUR MORTGAGE?
It has made mortgage qualification much more difficult for first time home buyers and existing home owners alike. The introduction of many new rules and policies has meant that borrowers across the board qualify for less mortgage money. This especially affects borrowers who are stretching to qualify. Many of the new rules include:
– New lender policies to confirm the circumstances of borrowers. Expect a lot more questions asked and conditions to satisfy lenders.
– Reduced amortization periods which has the effect of higher monthly payments
– Reduced debt to income ratios which directly decreases the mortgage amount you can carry
– The introduction of qualifying rates to determine affordability and create a buffer for rate increases and higher payments in the future
If you have an existing mortgage you don’t have to worry about these changes unless you break your mortgage and require new financing.
NON-CONFORMING BORROWERS
The most significant change is for non-conforming borrowers. Non-conforming borrowers include the self-employed, commission earners, seasonally employed or borrowers that have damaged credit history. B-20 only allows these borrowers financing up to a maximum of 65% of the value of their home.
This is a shame because this segment of the population represents a significant portion of Canadians who play a key role in society and in the Canadian real estate market. Many of whom are fully capable of carrying their mortgages without risk. Without access to their equity they will have to turn to more expensive methods of financing and won’t have the benefits of lower bank rates.
WHAT’S A BORROWER TO DO?
Luckily it isn’t all bad news for deserving borrowers. The new guideline B-20 only applies to federally regulated financial institutions including all banks and deposit taking institutions. There are many lenders especially those that mortgage brokers are specialized in working with who can still accommodate these so called ‘non-conforming’ mortgages. If you are having a hard time qualifying for a mortgage at the bank then contact a mortgage broker like myself. We work with lenders who aren’t governed by the OSFI and B-20 including credit unions and private lenders.
Are you having a hard time financing a mortgage? Has B-20 made qualifying difficult for you? Get me to give you a FREE no obligation assessment. I’ll do my best to provide with real solutions and point you in the right direction. Also be sure to sign up for my FREE blog updates below.
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