Scramble for mortgage-holders

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TREVOR HAGAN / WINNIPEG FREE PRESS Peter Brown is glad he renegotiated his mortgage to tackle credit card debt.

Anxious homebuyers and homeowners looking to refinance their mortgages have been scrambling to complete their deals before tougher new federal mortgage-lending rules take effect on Monday, according to one local mortgage broker.

Wayne McConnell said Friday his firm -- A-Plus Financial Services Inc. -- has handled 62 new mortgage applications and has fielded countless inquiries in the two weeks since federal Finance Minister Jim Flaherty announced the new rule changes on June 21.

"There have been a lot of phone calls, and we continued to have clients calling yesterday and today," McConnell said.

He and Diane Macpherson, an accredited mortgage professional with Verico One Link Mortgage & Financial, said most banks and other mortgage lenders were so swamped with mortgage applications that early this week they stopped accepting any new applications under the old rules.

"They (clients) can still apply (for a mortgage), but it will be under the new rules," McConnell said, although Mcpherson said she knew of one lender -- she wouldn't say which one -- that said it would still be accepting loans up until today under the old rules.

Lenders and mortgage brokers aren't the only ones being run off their feet because of the rule changes. Real estate agent Cole Castelane, of Century 21 Bachman & Associates, said his five-member sales team has seen a 25 to 30 per cent jump in business over the last two weeks from first-time and move-up buyers trying to squeeze in under Monday's deadline.

"And we'll still be very busy this weekend," he predicted, although anyone who hasn't already finalized their purchase will be too late to qualify under the old rules, he added.

McConnell said the two rule changes that will have the biggest impact on homebuyers and homeowners looking to refinance their mortgages are the one that drops the maximum amortization period to 25 years from 30 years and the one that reduces the maximum amount homeowners can borrow against the value of their home to 80 per cent from 85 per cent.

Both changes will result in higher monthly mortgage payments for most homeowners.

McConnell said buyers who were barely able to qualify for a mortgage under the old rules could get squeezed out of the market altogether. And those looking to add to their mortgage to pay down other debts, buy a vehicle, or finance some home renovations won't be able to borrow as much, he added.

He said the changes could also have a big impact on people having a new home built. Even if they've already qualified for a mortgage under the old rules, if they don't take possession of their home by the end of this year, they'll have to reapply for a mortgage under the new rules. And the will mean higher monthly payments, and in some cases that could be a deal-breaker, he added.

"There are so many scenarios where people think, 'I'm fine. I've been pre-approved.' But that may not be the case, so they should contact their lenders or contact their brokers and make sure they're still in the game."

Macpherson said all the clients who have come to her in advance of Monday's deadline have been looking to refinance their mortgages. They either want to avoid a hike in their monthly mortgage payments, or make sure they can still get the loan they need.

"I've done a number of deals this week that wouldn't have come to the table if these changes hadn't been announced," she said.

Winnipegger Peter Brown was one of those clients. He and his wife added to their mortgage in order to pay off some credit card bills, and they're are saving a whack of money as a result.

Brown said their new mortgage carries an interest rate of 3.09 per cent, versus 19 per cent for some of their credit card loans. He said they decided to act now because they weren't sure what impact the new rule changes would have had if they'd waited until after Monday.

"It's the beast we know versus the beast we don't know," he added.

The new mortgage rules are meant to cool down the overheated Vancouver and Toronto housing markets and to head off overzealous borrowing by Canadian homeowners.

Those two markets are already showing signs of slowing down, with resale-home sales down 17 per cent last month in Vancouver and 13 per cent in Toronto.

Winnipeg's robust resale homes market also cooled a little last month, according to June MLS (Multiple Listing Service) sales figures released Friday by WinnipegRealtors. But the decline here was a more modest two per cent -- 1,487 versus 1.516 in June, 2011.

WR president Shirley Przybyl said she remains optimistic about the markets prospects for the second half of the year.

murray.mcneill@freepress.mb.ca

A primer on

the changes

Here are they key mortgage-rule changes that take effect on Monday for new federal government-backed insured mortgages with loan-to-value ratios of more than 80 per cent:

-- The maximum amortization period is reduced to 25 years from 30 years. For a $300,000 mortgage, with a four per cent interest rate, that translates into an extra $150 a month in mortgage payments -- $1,578 versus $1,428. -- The maximum amount Canadians can borrow when refinancing their mortgage is reduced to 80 per cent from 85 per cent of the value of their homes. For someone with a home valued at $300,000, that means the maximum amount they can borrow is reduced from $255,000 to $240,000.

-- The maximum gross debt-service (GDS) ratio is lowered to 39 per cent of gross income from 44 per cent for borrowers with a credit score above 680. The total debt service (TDS) ratio stays at 44 per cent. For borrowers with a credit score below 680, the GDS ratio and TDS ratios also remain unchanged at 35 per cent and 42 per cent respectively.

-- The government will no longer insure the mortgages on homes purchased for more than $1 million. Buyers will either have to put up at least a 20 per cent down payment or seek private insurance.

-- source: A+ Financial Services Inc.

Republished from the Winnipeg Free Press print edition July 7, 2012 B4