Happy Friday! With the recent announcement by the Office of the Superintendent of Financial Institutions (OSFI) to implement a new stress test when qualifying mortgages, many of you have reached out to me to ask what exactly this means.
In a nutshell, come January 2018, all new mortgage applications and mortgage renewals - if switching financial institutions, will have to be approved using a new stress test. The new guidelines will require that new applications for uninsured mortgages (mortgages with more than 20% down-payment or equity) be qualified by using a minimum qualifying rate equal to the greater of the Bank of Canada’s five-year benchmark rate (currently 4.89 per cent) or their contractual rate plus 2 percentage points.
Let’s take a look at an example: The Jones family gross income is $100,000. They qualify for a 3.09 per cent mortgage. Today, the Jones would be qualified (assuming no other debts) for a mortgage amount of approximately $655,000*.
In January, that same rate plus 2 percentage points, is higher than the Bank of Canada’s 4.89 per cent five-year benchmark. Therefore, the family would then be qualified using a 5.09 per cent rate. They would be qualified (assuming no other debts) for a mortgage amount of approximately $530,000*.
Isn’t it time for your clients to act on buying their dream home or refinancing their existing home?
*Estimating using $5,000 annual property tax amount and $2,000 annual heating costs.
Beginning, October 12th, we’ve expanded our external carriers list for Insured Retirement Products, Access Lines and Access Lines Plus! Call me to find out which whole life policies of external carriers are on our new expanded list!
Finally, in September, we were able to help a lovely family in Vaughan. Their existing mortgage was with one of the big banks and they were paying 1.95%, in an open, variable conventional mortgage.
This family was looking to consolidate some debt but they told us they also wanted to start paying off their mortgage more quickly. The clients had been putting aside some money every month in order to make occasional prepayments and had accumulated $5,422 and were earning very little on this balance. They were also carrying a small balance on their credit cards of $12,300 which they had borrowed in order to do some home renovations. When we ran an illustration (attached) for the client, we saw that we were able to potentially save this client $56,613 in interest costs!*
The advisor asked his client just four questions:
1 – What is estimated current market value of home? Client’s response: $1,000,000
2 – What is existing mortgage balance and maturity date? Client’s response $447,231; maturing May 2020
3 – Amount of total liabilities? Client’s response: $52,300
4 – Estimated gross family annual income? Client’s response: $131,000
Within just five weeks of receiving required documents from client, we were able to transfer mortgage and consolidate debts within a Manulife One. While client did have to pay a three-month interest penalty to transfer his mortgage before renewal, client decided that it was worth the cost. Did I mention that we paid the appraisal fee and the standard legal fees to put the Manulife One in place? Clients have chosen to deposit their income directly into Manulife One so any money not used for expenses goes towards reducing principal. Their cash flow has increased and we learned,
during the application process, that the clients had a goal of opening up their own business in a few years so they’ll be using some of the equity in their home to invest in their business! Check out the attached Manulife One illustration. It’s not magic; it’s just math!
The Manulife One rate at the time of illustration was 3.20%
In the meantime, contact us today to learn more about Manulife Bank’s full suite of banking solutions!
With kindest regards,
Business Development Consultant