Tougher mortgage regulations from the federal government, announced this summer, could lead more homebuyers and homeowners to Credit Unions, analysts say.
For example, by this December major banks will be restricting HELOC (home equity lines of credit) to 65 per cent of a home’s value, rather than the 80 per cent to 85 per cent that has been common. Yet, notes Vancouver mortgage broker Kyle Green, Credit Unions are provincially regulated and need not follow the federal dictates.
Also, in about 90 days no-down-payment mortgages (cash back mortgages) will be eliminated at all federally-regulated lenders under regulations announced earlier this year by the federal Office of the Superintendent of Financial Institutions Canada. But provincially-regulated credit unions could keep offering cash-back mortgages for the foreseeable future.
However, Canada Mortgage and Housing Corporation, the major insurer of mortgages, supports the end of cash-back mortgages. This may curtail their use at Credit Unions, according to a report in Canadian Mortgage Trends.
Federal regulations also restrict downpayments on second homes or homes bought for investment to at least 20 per cent; and reduce the amortization period to a maximum of 25 years, rather than 30 to 35 years.
Green, a broker with Mortgage Alliance, said he also expects total debt-service ratios for home buyers to fall to 39 per cent from the traditional 44 per cent of income this year as banks tighten lending regulations.
It is also harder to buy homes priced at $1 million or more (a typical house price in parts of Metro Vancouver) without at least a 20 per cent downpayment, since such properties no longer qualify for mortgage insurance. At major banks “the risk managers are now running the show,” Green said.
Yet, Green added, there is a bright side to the tougher mortgage regulations. Most mortgage holders are now required to pay down more of their principal and less in interest because of higher downpayments and shorter amortization periods, while mortgage rates remain at historic lows, he noted. “A home buyer will save thousands of dollars by putting down a larger downpayment and paying off the mortgage sooner,” Green said.
