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Mortgage Broker News | 11 Feb 2010, 12:00 AM Agree 0
The federal government is considering a new mortgage rule where clients who take out variable rate mortgages must be qualified based on a higher interest rate, according to the Globe and Mail - a practice Genworth Financial already has in place.
  • Finn Larsen managing broker | 12 Feb 2010, 04:45 AM Agree 0
    I think that he government should steer clear of imposing more regulations on the mortgage lenders, One must remember that people must take responsiblity for their own actions, There is other ways that the government can be there for the citizens, If they continue on this type of path they will cripple home ownership as we know it today. Maybe then CMHC will fund mortgages again at prime, just some thoughts
  • zoubeida varsanyi | 12 Feb 2010, 04:53 AM Agree 0
    I am afraid the Government new rule toward obtaining a mortgage is harsh for the new couples starting a family and new home. They are making it hard to obtain a mortgage by shortning the amortization period and qualifying on higher interest rate. Also, making it hard to own a home can stop the industry from growing by blocking whole sector from expending based on buying a home. In other countries amortization years can stretch to 200 yrs. Government should assist people in owning a home not stop them from buying a home by introducing lower rates and longer amortization years and that will help many business to grow and the whole country to flourish.

    Mortgage & Loan Consultant
  • AB mortgage broker | 12 Feb 2010, 05:32 AM Agree 0
    This will make it even more difficult for brokers to obtain approvals for clients. Banks will always bend the rules for their favourite clients.
  • Mortgage Planner | 12 Feb 2010, 06:06 AM Agree 0
    The government should be less concerned with the mortgage side of things and place tighter restrictions on the credit card companies. The credit card company lending policies are way too loose. Anyone with a heartbeat can obtain a credit card today and what's worse, is that card application is based on a stated income. That said, ultimately it's the consumer that has to start taking responsibility for themselves and not look to the government for help or even tighter controls.
  • CU Lender | 12 Feb 2010, 06:11 AM Agree 0
    I think its a good thing. If we continue down existing path clients will be in trouble as interest rates rise from the point the amortizations will be rising instead of falling. If a client can't afford a fixed rate mortgage why try to get them approved using a VRM? Sure the broker gets there commision but where will the client be in 6 months when the rates start to increase and member's amortization creeps up.
  • AB Broker | 12 Feb 2010, 06:34 AM Agree 0
    Let's face it, who are we to tell a client what they can and can't afford? Is this to suggest that "junk food" should be taken off the shelves because obesity is killing more and more Canadians? Whatever happened to education? Should the
  • anne perala | 12 Feb 2010, 06:36 AM Agree 0
    I am a mortgage broker and see this every day in my line of work. It makes no difference to me as a broker weather my clients want to take advantage of the lower variable rate or the security of the fixed, I get paid the same amount either way. And we already have been using the higher posted fixed rate to qualify for the variable products all along(exept for ING) so this is already in place. If the banks and government want to stop people from getting into too deep debtload, they should make it mandatory for the lenders to actually qualify people for credit cards and car loans; that is the deep black hole in lending, not the rent or the mortgage.
  • JB | 12 Feb 2010, 06:36 AM Agree 0
    Every lender has done this for as long as I remember. In fact the "qualification rate" for VRMs is normally higher than the 5 year fixed. I wonder why Genworth is playing the politico card right now?
  • Brian Matthey-Verico The Mortgage Professionals | 12 Feb 2010, 07:59 AM Agree 0
    As a mortgage broker for over 20 years,I am reading with interest the current debate on tightening the regulations on variable rate mortgages.

    In my practice 95% of all variable rate mortgages that I have processed over the years have had their payments set based on the current 5 year mortgage rate in place at that time,irrespective of the current variable rate.

    By doing so my clients have been able to make a significant reduction in their principal while ensuring that they would not encounter any payment shock when and if interest rates were to increase.Obviously in the current rate climate, I have a lot of very happy clients who have seen their mortgages reduce in a much quicker fashion than would have been the case in a fixed mortgage and they have done so with a manageable payment.Interestingly,the higher payment still left them within qualified parameters on approval as lenders have long had the view that clients should be approved based on a higher rate than applicable in the mortgage.

    The recent study by CAAMP introduces the government to a sizeable portion of fact in the governments world of speculation and "raison d'etre".Five percent down is not an issue.Thirty five year amortizations are not the issue.Affordability is an issue and the current guidelines speak to that that in this heated housing market,while considering the risk based on debt service parameters that are more closely monitored than they ever have been in the past.Increasing the down payment will have a negative impact on the economy and shut down the housing market and will not have any impact on someone’s ability to afford a mortgage.

    End the ability to pay issue and legislate variable rate mortgages to use a payment based on the current 5 year mortgage rate in effect at the time and you will be doing those clients in variables a big favour. Any self respecting mortgage professional in the mortgage business who has been looking after his clients best interest has been doing this for years in any event.

    The government may just have to be back in session to do so.I think the bigger issue here is the government ability to do anything while they take their extended vacation!
  • Lachman Balani | 14 Feb 2010, 02:57 AM Agree 0
    There is a school of thought that the rates may go up like in 2002 from prime of 3.75% to 5%, when the markets couldn't take it, the rates went down again to 3.75% in 2003 before thay started going up in 2004 and kept going till 2008 when they hit 6.25%. Some such similar route will be followed again.
    Also upto a year or so ago the spread was 1.75% between the prime and the overnight rate.
    It is currently 2% and as rates go up, the spread might reduce to 1.75%.
    As it is clients taking the variable rate are now qualified as per 3 year rates so basing it on a 5 year rate is going a step further and is a good safety measure.
    If rates go up 2% then the prime will hit 4.25%(it is currently 2.25%) and those on variable will be at prime- .3% or 3.95%, which is more or less what the 5 year rates are now. So qualifying them using a 5 year rate is a good measure.
    If by chance the banks decide to be generous and reduce the spread to 1.75% then those on variable will be paying 3.70%, thus the 5 year rate is a good measuring stick.
    Here we are using the discounted mortgage rates and not the posted bank rates.
    However whether this should be a rule edicted by law or not is another question. Best to go the Genworth route using discretion.
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