With the passing of the March 18th deadline, where CMHC reduced maximum amortization lengths to 30 years from 35, there has been discussion over how many buyers have advanced their purchases to qualify for lower payments. (A move from 35 years to 30 years, all else equal, increases monthly payments by about 7%.) But that’s not all that has been going on recently in MortgageLand. If one looks closely, banks have been pulling their 35 year amortization advertising. To wit:
- TD’s and Scotia’s mortgage calculators won’t let you put in an amortization longer than 30 years
- CIBC says one can get “An amortization period of up to 30 years to pay off your mortgage”
On the other hand, it seems business as usual over at Canada’s largest non-bank lender First National, where 35 year amortization options are displayed.
It appears like the Big 5 banks are reducing their advertised amortization lengths in close conjunction with CMHC reducing its amortization length. However banks have other tricks up their sleeves, including:
- Scotia has dropped advertised qualification criteria on their loans.
- Despite posted 30 year amortization, banks will, apparently, offer extended 35 year amortizations “behind the scenes” to those who negotiate and qualify, likely on loans that are deemed not to require any mortgage insurance even if less than 80% LTV.
- Smaller lenders like some credit unions still use “offset” instead “add to income” for adding revenue from rental properties to mortgage qualification amounts. (I know some major banks used offset a while ago and, for sub-markets like Vancouver, may do so today; this would need to be verified.)
So the question is, why would banks reduce their posted amortizations to 30 years? Are their risk departments raising a big stink in the boardroom and are they tightening standards in response, or maybe the government has had something to do with it? It was made clear by Bank of Canada governor Mark Carney that banks must bear long-term responsibility for ensuring homeowners can afford their mortgages for the duration of the planned amortization. I should hope so; his bosses bear the brunt of any fallout damage if prices significantly weaken. Here’s what Carney said back in November 2010:
The one thing we can say with high degree of certainty is that over a thirty year mortgage interest rates are not going to be at the same level as they are now, they’re going to be higher, and that Canadians, individuals, should be comfortable that they can service their debt at higher interest rates, and the banks that lend to them should also be comfortable about that.
Hm. I just noticed now how he said “thirty” and not “thirty-five”; that’s a bit odd. Now we see banks starting to tighten even on low ratio loans, albeit not universally. The margins of loose lending are being pushed out into the fringes.
So is anyone seeing any change in what/how lenders are lending to non-high-ratio customers? I’ve given up going into lenders to find out; every time I do they run a credit check and ding my rating