The Ministry of Finance has remedied a significant regulatory oversight that precluded low-risk borrowers from insurable mortgage rates simply because they refinanced after a certain date.
“A communication was sent to all the lenders from CMHC and Genworth that, effective Monday [April 30, 2018], any refinance after November 2016 can be switched or transferred to a new lender and qualify for insurable mortgage rates,” said mortgage broker and Principal of Champion Mortgage Doug Adlam.
Borrowers who refinanced their mortgages after November 2016 could not qualify for insurable mortgage rates upon renewal, inauspiciously leaving them the options of remaining with their institution or moving onto a better one with no discernible rate advantage. However, Adlam and a small group of brokers, lenders and insurers lobbied the government to fix the flub.
“It’s a huge win for Canadians and it truly shows the benefit of mortgage brokers, lenders and insurers in the Canadian industry, who totally, completely and always look out for the best interests of Canadians,” said Adlam. “I really think Canadians forget what interest rates looked like before the brokering industry grew. Interest rates on average would be about 1.5% higher than they are today. It goes to show that, from day one, mortgage brokers have been trying to bring down the façade of posted interest rates.”
It isn’t often that government walks back its own fiat, and while no admission of blundering accompanied the communication that outlined the new rules, responsible borrowers will no longer be penalized.
“On the one hand, I am surprised because, typically, when they make a change they stand by it,” said Adlam. “On the other hand, the Ministry of Finance wants to ensure that Canadians are well-protected and ensure that people with those lower-risk loans who renew their mortgages have the benefit and the opportunity to seek insurable and, therefore, lower interest rate mortgages now and into the future. It’s just disappointing that there have been borrowers that had to renew into high interest rates while this initial oversight had to be reclarified.”
In a statement provided to Mortgagebrokernews.ca, CMHC—which, along with Genworth Financial and Canada Guaranty, pressed the Ministry of Finance for clarification on the rule—says purchase transactions are presently the only permitted loan purpose, although caveats do apply.
“A refinance loan, defined as an increase to the outstanding balance or extension of the original amortization, is not a permitted loan purpose,” reads the statement. “At the borrower’s request, a mortgage may be switched from one lender to another, and be eligible for mortgage loan insurance, provided that the new lender does not refinance the mortgage at time of the switch/transfer and meets other insurability criteria per the Insurable Housing Loan Regulations… In the case of a dissolution of relationship/buyout of a co-borrowers interest in the property, funds required to acquire the departing co-borrower’s interest in the property would be eligible for mortgage loan insurance.”