Canadian mortgage lenders are changing the way they view potential borrowers financial situations, specifically with respect to secured & unsecured debts. Before the changes, It was typical for a lender to include payments on outstanding liabilities at face value, if no payment was provided, 3% of the outstanding balance was the norm. This worked in favor of individuals who had outstanding credit balances that only required an interest only minimum payment. As a lower payment contributes less to the Total Debt Service, the borrower could essentially qualify for a higher mortgage amount.
Street Capital Financial Corporation
Street Capital implemented the changes effective May 8th 2013 in an email addressed to brokers (PDF below). In what Street describe as "Debt Servicing Ratios Imput Rules" they provide the following information...
Existing Home Equity Line of Credit (HELOC)
"Existing HELOC reported on the bureau as a revolving trade line the payment is 3% of the outstanding balance unless confirmation is obtained to confirm that the credit is a secured line. If secured existing payments may be based on credit limit and a Prime Rate Factor (4.35% interest over 12 months + 0.25% of limit over 12 months)".
Liquid/Margin Secured Revolving Line of Credit
You gotta hand it to Street Capital here, liquid/margin secured is just a pretty fancy way of saying "Unsecured" but I will admit, it does have a nice ring to it! Anyway, here are the guidelines: "When reported on the bureau as a revolving trade line, a payment of 3% of the outstanding balance will be used".
Simply put, these rule changes are reducing the home buying power of the average Canadian.
In case you missed it, here is how First National Financial LP is handling their rule changes!