Refinancing your mortgage and converting higher-rate debt like credit cards, consumer loans and unsecured lines of credit into a mortgage, which typically has a very low rate makes a lot of sense. Some homeowners may have a first mortgage at a lower rate and a second mortgage that they want to combine.

These transactions have gotten more difficult since Office of the Superintendent of Financial Institutions (OFSI) recently introduced a new stress test for home buyers or home owners whose equity is 20% or more and don’t need mortgage default insurance.

Most mortgage brokers are saying that their mortgage application rejection rate from large banks and traditional mono line mortgage lenders has gone up as much as 20 per cent since the change came in effect on January 1st.

2018 Clients who are either buying or refinancing, and don’t meet the income requirements are turning to non-bank or mortgage lenders who seeing an increase in their business as mortgage brokers are recommending more and more of their clients to them.

These lenders are not required to adhere to the qualifying rate imposed by the new stress test (Bank of Canada posted Rate or a rate 2% higher than their contract rate). Most of the private lenders and Mortgage Investment Corporations are seeing an influx of borrowers with 700 and up beacon score who prior to this year were A bank clients. What must be noted with the new stress test is that its not credit that is king but income. You could have the highest credit score and the best credit profile, under the new stress test the test is based on payment. Will the borrower be able to make their payments if rates go up by 2% (mortgage offer rate plus 2%)? If your current income will not sustain that test, then you will be pushed to an alternative lender.

Going to an alternative lender could be a blessing and a curse. Under one hand if you are a buyer and want to get into the market and stop paying rent, or is you are a homeowner wanting to refinance and save on your debt payment you can accomplish that. On the other hand, there is a cost to get the mortgage. When your broker gets the banks and monoline lenders to compete for your mortgage they pay the mortgage broker a finder’s fee or commission, so the broker does not have to charge for their service.
Through a lender, the borrower bears all costs of getting the mortgage (appraisal, legal fees, inspection fees and broker fees). alternative lenders do not pay the broker for bringing a mortgage to them.
That extra cost is not something that the borrower is prepared to accept yet and it does take a longer time now to get a client to proceed with a mortgage when they factor in the higher rates and the extra cost of getting a mortgage.

I recently got a file that was looked at by eight mortgage brokers before the file got to me and the applicant who was self employed was told that she wouldn’t be able to qualify for a mortgage with a financial institution. The application I later realised was not submitted but the applicant was told that the would be 7.49% for the mortgage and a lender fee of 2.50% at a private lender and then 1% broker fee. The applicant was not asked for any document, the fact that she was self employed and the net income was just over $30,000.00. One day after getting the documents she got an offer 4.59% for a mortgage. Cant say what the other eight agents did but maybe they were thinking that it would have been rejected at a financial institution.

Since the updated mortgage guidelines came in effect, both the Bank of Canada of rate and mortgage qualifying rate has risen, dealing a “double extra whammy” to borrowers. Because of that we are seeing a higher rate of application and it is taking longer and more diligence to get borrowers approved as we submit to the various lenders we have and wait for them to get back to us and select the best rates for our clients. The new rules are changing which lenders borrowers do business with.
What we are finding is that lenders who didn’t have that much business in previous years now have a huge demand on the funds they have and who are now pickier with the types of borrowers they lend to.