One leading alternative lender shares his opinion on the new mortgage rules
Tribecca Finance was recently awarded the North York Mirror’s Reader’s Choice Award for best lending company. On the heels of that honour, we spoke with Rajan Kaushal, president of Tribecca, to get his take on the recent mortgage rule changes.
What impact will the new qualification standards for insured mortgages have?
Let’s put this in perspective, one of the main reasons real estate prices have increased the way they have is because of very low interest rates. Having to qualify under the current posted rate of approximately 4.6% is not unreasonable and will protect many home owners from a lot of heartache if interest rates were to rise.
The obvious problem is it makes it more difficult for first-time home buyers to enter the market; however, there are other ways to help them. One way is to increase the amortization periods to 30 years. If someone wants to own a home opposed to renting and has the income to service the mortgage payments under the posted rate, which is higher than their actual rate, a 30 year amortization is a non-issue.
The only difference is it takes a few more years to pay off the mortgage or equity is built a little more slowly. Regardless they are still better off. I believe everyone should have the opportunity to take a 30 year amortization; home ownership should be encouraged. If the fear is too much household debt, the lower TDS ratio of 44% will help alleviate this concern. The goal of the government should be to help Canadians enter the market, while mitigating the risk of rising interest rates as well as preventing excessive borrowing.
What are your thoughts on eliminating capital gains exemptions for foreign buyers for properties not listed as a principal residence?
This is a no brainer, the loophole has been closed. We have laws in our country and they must be followed by everyone.
Lenders will soon be forced to take on a larger share of the mortgage risk. Is this a good idea?
I don’t believe the risk of insured mortgages should be passed on to the lenders if they follow the guidelines, because this cost will inevitably be passed on to the end consumer. CMHC has guidelines and the lenders should only be penalized if they don’t adhere to them, this will ensure prudent lending practices.
Also, the monoline lenders shouldn’t be forced out of the market; competition is good for the end consumer.
Will alternative lenders benefit from the new rules?
Alternative lenders will see more business because of the changes. In certain circumstances it is better for a client to take a 1st and 2nd mortgage over paying a high ratio insurance premium. However it’s better to have both options available to the end consumer.
With more people not qualifying, sales are expected to slow which should create more balanced supply and demand, however I don’t think prices will fall.
We have seen unsustainable price increases in our real estate market, especially in the last year. If the prices continue to rise at the same pace, at some point we are going to face a hard landing. The average price is too high relative to our average income. Although we have a healthy real estate market, it is naïve to believe that we will perpetually be fueled by foreign buyers and low interest rates.
What impact will the new qualification standards for insured mortgages have?
Let’s put this in perspective, one of the main reasons real estate prices have increased the way they have is because of very low interest rates. Having to qualify under the current posted rate of approximately 4.6% is not unreasonable and will protect many home owners from a lot of heartache if interest rates were to rise.
The obvious problem is it makes it more difficult for first-time home buyers to enter the market; however, there are other ways to help them. One way is to increase the amortization periods to 30 years. If someone wants to own a home opposed to renting and has the income to service the mortgage payments under the posted rate, which is higher than their actual rate, a 30 year amortization is a non-issue.
The only difference is it takes a few more years to pay off the mortgage or equity is built a little more slowly. Regardless they are still better off. I believe everyone should have the opportunity to take a 30 year amortization; home ownership should be encouraged. If the fear is too much household debt, the lower TDS ratio of 44% will help alleviate this concern. The goal of the government should be to help Canadians enter the market, while mitigating the risk of rising interest rates as well as preventing excessive borrowing.
What are your thoughts on eliminating capital gains exemptions for foreign buyers for properties not listed as a principal residence?
This is a no brainer, the loophole has been closed. We have laws in our country and they must be followed by everyone.
Lenders will soon be forced to take on a larger share of the mortgage risk. Is this a good idea?
I don’t believe the risk of insured mortgages should be passed on to the lenders if they follow the guidelines, because this cost will inevitably be passed on to the end consumer. CMHC has guidelines and the lenders should only be penalized if they don’t adhere to them, this will ensure prudent lending practices.
Also, the monoline lenders shouldn’t be forced out of the market; competition is good for the end consumer.
Will alternative lenders benefit from the new rules?
Alternative lenders will see more business because of the changes. In certain circumstances it is better for a client to take a 1st and 2nd mortgage over paying a high ratio insurance premium. However it’s better to have both options available to the end consumer.
With more people not qualifying, sales are expected to slow which should create more balanced supply and demand, however I don’t think prices will fall.
We have seen unsustainable price increases in our real estate market, especially in the last year. If the prices continue to rise at the same pace, at some point we are going to face a hard landing. The average price is too high relative to our average income. Although we have a healthy real estate market, it is naïve to believe that we will perpetually be fueled by foreign buyers and low interest rates.
