This week started with quite the surprise announcement by the Federal Government as it was announced that they were making the 'boldest reforms in decades' regarding Canada's mortgage system. The announcement of the two major changes was definitely surprising to everyone as it was not expected, and seemed to come out of nowhere.

The first announcement was that first time home buyers could now qualify for 30 year amortization on an insured mortgage whether they were buying a new build home or a resale property. This is a change from previously allowing only 25 year amortization on insured mortgages, while amending another change that came into effect August 1st that allowed first time home buyers to qualify for a 30 year amortization as long as they were buying a new build home.

As a reminder, an insured mortgage is when a home buyer has less than 20% to put down on a property and features a mortgage default insurance premium in order to be backed by the insurer and decrease risk to the lender.

The change to allowing 30 year amortization can accomplish two things; I will give examples shortly. The first is that it can lower monthly payments to allow first time home buyers to better afford their new property while getting used to home ownership. The increased cash flow can assist home buyers with this; however, the lower payment is offset by the fact that their will be an increased interest cost to the mortgage and less principal will be paid off during the term, resulting in a higher mortgage amount at the end of it. The second thing that the increased amortization can do is increase the amount that the potential home buyers would qualify for and be potentially be able to compete for a wider range of properties that they otherwise would not have had access to; however, a budget should be considered ahead of using the program for this purpose in order not to end up house broke.

To give an example of the lower payment potential that a 30 year amortization would represent, we will use a mortgage amount of $500,000 at todays average insured rates on a 5 year fixed mortgage. The mortgage payment using 25 year amortization would be roughly $2,800 compared to the mortgage payment of roughly $2,550 using 30 year amortization. This represents a difference of $250 per month and can help make the mortgage more affordable; however, as mentioned before, the downfall to this is that there is roughly an increase of $2,000 in interest expense and there will be roughly $16,000 less going towards principal over the term of the mortgage. This means that at the end of the term, the mortgage balance at renewal will be roughly $16,000 higher than it would have been if the 25 year amortization was used. There will likely be an increased mortgage default insurance premium to consider with the longer amortization; details on this will follow as the insurers have time to prepare for the upcoming changes.

It is important that clients consider the downfalls of using a longer amortization period and take advantage of prepayment options available to them when possible in order to ensure their mortgage is properly positioned for them in the future.

It is important to note that the 30 year amortization announcement is for first time home buyers buying a new build or resale property, as well as anybody purchasing a new build property, whether a first time home buyer or not.

The next example is in regards to how the longer amortization period can affect how much clients would qualify for; which means they may have the opportunity to find a property that is suitable for them that may not have been an option with the current 25 year amortization. If we use annual income of $120,000 with a down payment of $40,000 and 25 year amortization we would come up a maximum purchase price in the range of $530,000; however, if we increase the amortization period to 30 years, the maximum purchase price could potentially increase into the neighborhood of $565,000. While this can present the opportunity of having more options available and being able to compete a bit more, it does come with the same downfalls of increased interest expense and less principal being paid over the term. It also may present the downfall of clients potentially buying more home than they can afford and struggling to make mortgage payments along with other household expenses.

Before using the 30 year amortization as a way to increase purchase potential, the suitability of the program for the clients should be weighed heavily and all negative aspects should be considered. Just because you may be able to use the increased amortization to buy more house; doesn;t always mean you should. 

The other announcement was an even bigger surprise and represented a bigger change than anyone in or out of the industry expected. Many in the mortgage industry have been advocating for an increase in the cap to purchase prices in order to have an insured mortgage. Currently the maximum purchase price is $1,000,000 and is sufficient in most parts of the country; however, there has been a push to increase the maximum purchase price to $1,250,000. The federal government surprised everybody and announced that the cap for an insured mortgage was being increased to $1,500,000, which is the first change to this since 2012.

While this change will assist some home buyers with being able to enter the market with a lower down payment in the more expensive parts of the country, it's use may be limited as the amount of income required to qualify for such a large mortgage is out of range for most people. This may lead to an increase in co-signers being used; however, changes to tax rules regarding co-signing need to be considered first.

A mortgage over a million dollars with 30 year amortization for a first time home buyer can definitely present some big challenges, and affordability of the home buyers themselves needs to be carefully considered, even if there are co-signers willing to assist with the purchase.

The changes are proposed to take effect on December 15th of 2024 and before looking to take advantage of these programs, it is important to discuss the pros and cons with a Mortgage Broker beforehand.

When it comes to understanding a mortgage for a self employed individual it is critical to recognize that the core principles of the mortgage remain the same whether you are self-employed or employed as a traditional employee. The process of securing a mortgage for a self-employed individual can be a bit different due to the nature of their income. Unlike a traditional employee who receives a steady pay cheque, self-employed workers typically experience variable income streams that can fluctuate widely from month to month or year to year. This can make it slightly more challenging for a lender to assess the clients' ability to repay the loan.  In order to obtain financing for a self-employed individual, the job of a Mortgage Broker is to work with the client to gauge how best to demonstrate their financial stability and reliability to lenders. Every lender will have different policies on which type of self-employed clients they will work with and how they assess the client's income as presented. This is why many self-employed individuals may find it challenging to obtain a mortgage, even from their bank they have dealt with for many years. Many times there will be additional documentation required beyond the standard requests for someone that is self-employed. Lenders will often look for documentation such as the companies financials, 2 to 3 years of tax returns with N O As, 6 to 12 months of bank statements and ownership documentation to show at least 2 years of self-employment, like the Master Business License or Articles of Incorporation for an incorporated business. The down payment required for a self-employed individual can be as little as 10% depending on the structure of the clients self-employment; however, we traditionally see a mortgage for a self-employed individual requiring a down payment of 20% due to the client's income structure. The source of the down payment is also important with a self-employed individual as lenders may not allow gifted down payment and require that the down payment be fully from the client's own resources. There are many mortgage programs available for a self-employed individual, the availability of the different programs mainly comes down to how the client pays themselves from their business. The simplest way to calculate the clients' income is by looking at the client's verifiable income; this is how much is shown on the client's tax return and in many cases it does not provide much qualifying power as their net income may be low. The reason for this is that self-employed individuals have a different way of declaring their income due to advantages provided by write-offs and other tax benefits; especially if the individual is incorporated. An individual that is incorporated or owns an incorporated business has a few options when it comes to paying themselves from the business, and may even pay themselves only enough to cover their personal expenses while electing to keep money within the business. The benefit to this is a lower taxation expense; however, the trade-off is that there may be issues qualifying for a mortgage based on the clients' income; this is where a 'stated' or 'declared' income mortgage product comes in. These mortgages may require the client to declare their income and the lender will use different methods to verify and ensure that the declared income is realistic and will provide an opportunity for the client to repay the mortgage. These mortgages may feature slightly higher interest rates and have fees; although, when compared with the tax savings, the higher interest and fees make much more sense than paying more tax to the Government. It is always recommended that clients discuss their financial situation with their accountant and financial advisor, as well as their mortgage broker; in order to structure their finances in such a way that provides the most benefit to the self-employed individual. Having professionals in each field involved in the process and providing feedback is crucial. More and more people in Canada are choosing to be self-employed and lenders are responding with different mortgage products and programs in order to provide these individuals with an opportunity to obtain financing for a dream home for them and their families. In conclusion, a mortgage for a self-employed individual is the same as a mortgage for a client that is employed in a traditional manner, the difference comes down to how the client's income can be calculated. There are different options available, however, some of these options may not be available based on the client's verifiable income. It is important that a self-employed individual work with a Mortgage Broker in order to review the different mortgage products available to them and ensure they have the most suitable option in place for them and their family. Feel free to reach out at (905) 440-5392 with any questions on self-employed mortgages or anything else mortgage related!

When it comes to applying for a mortgage, there are two important numbers that your Mortgage Broker will pay attention to when qualifying you for the mortgage. These are your Gross Debt Service, or GDS, and Total Debt Service, or TDS, ratios. They are commonly referred to as the debt service ratios or qualifying ratios, and depending on the type of mortgage product you require, they may be the most important aspect of your application and possibly the deciding factor in whether you are approved for the mortgage or not.

The purpose of the GDS and TDS is to determine whether the future mortgage payment can be afforded by the potential borrower. It is important to note that for mortgages, when calculating the GDS and TDS, your Mortgage Broker will use a rate that is different from your actual contract rate, in order to keep within regulations. This is called applying the 'Stress Test' and we use the benchmark rate of 5.25% or your contract rate plus 2%, whichever is higher. As an example, let's say the current contract rate is 4.99%. Your Mortgage Broker will need to use 6.99% in order to calculate your GDS and TDS to qualify you for the mortgage.

The 'Stress Test' is put in place to ensure that borrowers can not only afford their mortgage payment currently, but can also afford the payment if rates were to rise in the future.

In the instance of an Insured mortgage, one with less than 20% down payment, and an Insurable mortgage, one with more than 20% down, but still within the guidelines of an Insured mortgage; the maximum GDS and TDS are 39% and 44% respectively. There are no exceptions allowed and a clients GDS and TDS cannot go over the maximums, even by the slightest point of a percent.

Some Uninsured mortgage lenders do have programs available that feature extended qualifying ratios where the lender will mitigate the higher GDS and TDS numbers by looking at the strength of the application overall and potentially approve the client even with a higher GDS and TDS.

The Gross Debt Service, or GDS ratio is calculated by dividing the total housing costs by the total household gross income, or income before taxes. Basically, it calculates the percentage of a client's income that is required to pay all monthly housing costs. The amounts used for housing costs are the qualifying mortgage payment, including principal and interest, as well as property tax and heat expense. For condominium properties, half of the condominium fees are also included. When applying for a 2nd or 3rd mortgage, the other mortgage payments would also be included in this calculation as well.

For example, if your household income is $150,000 annually, or $12,500 monthly; the total housing costs must be less than 39%, meaning $58,500 per year, or $4,875 per month. If the housing expenses were to amount to more than $4,875 per month, the mortgage may not be approved.

The calculation for the Total Debt Service, or TDS ratio is similar; however along with housing expenses used to calculate the GDS, it includes all other liabilities as well. This will include any other liability that would result in a balance owing if not paid; such as credit card payments, line of credit and loan payments, car payments, child support, and others. Housing expenses for any other properties would also be included in the TDS calculation.

Using the example from before, if your household income is $150,000 annually, or $12,500 monthly; the total housing costs and other liabilities must be less than 44%, or $66,000 per year, or $5,500 per month. If they were to calculate higher, the mortgage may not be approved.

When applying for a mortgage, it is important that your Mortgage Broker properly calculates your GDS and TDS ratios ahead of time and knows different lenders guidelines regarding maximum ratios. This will ensure that you are aware of the maximum mortgage that you would qualify for.

While it is true that there are many things considered when you apply for a mortgage, such as credit score and credit history; the GDS and TDS ratios are often the most important factor and may present a hard stop on an application. Going over the maximum ratios may lead to a mortgage application being declined even when everything else on the file is good.

If you're considering taking the big step towards homeownership, it's essential to understand what's involved when it comes to your finances. When purchasing a home, you'll need to make a down payment. This down payment is the initial amount of money you pay towards the total purchase price of the house. It's important because it affects several aspects of your home buying process like mortgage approval, monthly mortgage payments, and even your interest rates. Your down payment becomes your initial equity in the property. The minimum down payment requirement varies depending on the purchase price of the home. If the house is priced at $500,000 or less, the rule is quite straightforward. The minimum down payment required is 5% of the purchase price. However, if the purchase price goes above $500,000, things change a bit. For the portion of the house price above $500,000 and up to $1 million, the minimum down payment jumps to 10%. Let me explain this in more detail. Let's say you're looking at a home that costs $600,000. We'll take the two brackets into consideration to calculate the minimum down payment. For the first $500,000, the minimum down payment is 5%. That would be $25,000 (5% of $500,000). Now, for the remaining $100,000, which falls in the second bracket, the minimum down payment is 10%. So, for that portion, you would need an additional $10,000 (10% of $100,000). Adding those two figures together, your total minimum down payment for a $600,000 home would be $35,000. Now, it's important to remember that the above minimum down payment requirements are for homes that will be owner-occupied. If you're purchasing an investment property or a second home, different rules may apply, and you might need to make a higher down payment. Let's focus on owner-occupied homes for now. Now that you know the minimum down payment requirements, you might be wondering why they exist and what they mean for you as a homebuyer. The minimum down payment is there to protect both you and the mortgage lender. By requiring you to have some skin in the game, it reduces the risk for the lender. It shows that you're committed to the purchase and have some financial stability, which gives lenders confidence in your ability to make mortgage payments. On your end as a homebuyer, the down payment has a significant impact on your financial situation. Let's break it down. The higher your down payment, the less you'll need to borrow from the bank in the form of a mortgage. This means your monthly mortgage payments will be lower, which can ease your financial burden. It also means you'll pay less interest over time, saving you money in the long run. On the other hand, if you have a smaller down payment, you'll need to borrow more from the bank, resulting in higher monthly payments and more interest paid over the life of the mortgage. So, it's in your best interest to save as much as possible for that down payment. Now, let's talk about where your down payment can come from. It's not uncommon for homebuyers to use their own savings or investment accounts to fund their down payment. Accumulating that amount may take time and careful budgeting. But there are also other options available to you. For instance, you can receive gifted funds from a direct family member, or you can use funds from your First Home Savings Account, or your Registered Retirement Savings Plan through the Home Buyers' Plan. This program allows first-time homebuyers to withdraw up to $35,000 from their RRSPs without incurring income taxes. Keep in mind, however, that you'll need to repay the withdrawn amount to your RRSP over a specified number of years. Some lenders and insurers also have special programs that allow you to use borrowed funds for the down payment; however, these programs do have higher insurance premiums and different approval requirements than a mortgage with a traditional down payment. For a property with a purchase price of $1 million and more; the minimum down payment is 20% of the full purchase price. As you can see, the minimum down payment for purchasing a home is an important aspect of the homebuying process. It can affect your mortgage approval, monthly payments, and overall financial well-being. It's important to carefully plan and save for your down payment, as it can make a significant difference in your homeownership journey.