Last Call for Mortgage Approval

Last Call for Mortgage approvals

With just days to go before the new mortgage rules take effect on January 1st, we are seeing a flurry of mortgage applications.   Panic buying and refinancing is at its peak. And rightfully so..  next year, you will qualify for at least 15% less mortgage.

(TIP… get a preapproval before Dec 31st and it will remain valid for 120 days from the date of preapproval. You do not have to enter into a purchase agreement before Dec 31st.  And if refinancing, you don’t have to close prior to Dec 31st. This is not with all banks.  Call my office for more info.)

LET’S BEAT UP ON THE SELF-EMPLOYED SOME MORE

How about the self-employed person that must qualify on their net income after taxes?   Everyone (salaried and self-employed) show lower net income after you deduct taxes.  But, did you know that salaried or hourly employees qualify on their gross income, not their net?  Yup, that’s right.  Self-employed individuals must qualify with their net incomes.  (I believe the Federal govt referred to these people as the so-called tax cheats or people that are getting away with not paying their fair share of taxes as we’ve recently heard from our govt)

Over 15% of self-employed individuals can no longer qualify.  Not because of their true ability to pay, but because of the new rules.  Many of these entrepreneurs leverage their life savings, their homes, to borrow to invest in their business.    These people will be forced to look elsewhere for funds. You can be sure they will pay a higher interest rate.  Self employed are the backbone of our country, yet they are being made to feel like crooks or 2nd class citizens.  This is a “made in Canada challenge” that just isn’t necessary.

LET’S NOT FORGET OUR SENIOR CITIZENS OR THOSE APPROACHING RETIREMENT AGE

These rules will push that retired home owner, living on a pension, with a $600k home that wants to take out a $200k line of credit or mortgage so they can live their remaining days in their home… This person will now be forced to sell and rent or compete to rent in a market that has seen sky-high rents (recent report shows Barrie, Ontario’s average 1 bdrm apartment costs over $1200/mth and 2 bdrdm over $1600/mth.  Yes, Barrie!!).

I have a client.. (this may sound like you or someone you know).   She is a self-employed cleaner.  She has saved all her life.  Has a condo worth $450k.  She has a very small mortgage of $75,000 which she can easily afford.   She has a little cash in the bank and a small pension of $35k annually.  But it’s enough for her to pay her bills, food, housing costs and even some entertainment.  She wants to have access to money in case of a financial emergency.

In years past, I would have been able to get her a secured line of credit for $150k to $200k easily.  Her payments on a such a facility would be around $31/mth for every $10,000. Lenders are happy to extend credit to someone that has so much equity in their homes.  The risk of default and loss are nil.

But in today’s crazy world of credit, I have to tell this woman she can only qualify for an extra $25k to $30k at most.  Most Lenders don’t even want to do mortgages or secured lines of credit for such a small amount.  Minimum amount is $50k to $75k.

At this point, this client will have to consider selling her condo and renting.   I know what some of you are thinking.  That “it’s not a bad idea.”  “She can’t afford to stay in the condo”. Oh yeah?  Try finding a place for $1200/mth in the GTA.   This woman can afford to stay in her condo.. but because of the new rules, she is being pushed out and will most likely have to sell and rent.   The rental market in the GTA has never been hotter.   We’re seeing reports of bidding wards to rent.  Air BnB is having a huge impact on the rental market.

How long can this retiree afford to rent?  How long before her money runs out?  This only started becoming an issue just a few years ago.  It was never a problem before.  This is a “made in Canada problem”.