New mortgage rates good for banks, bad for borrowers: RateSpy
New mortgage rules will be good for Canada’s big banks but will make mortgages more costly in 2017, says Rob McLister, founder of RateSpy.com.
“If you compare summer 2016 to summer 2017 you are going to see a half-point bump — maybe even a three-quarter percentage point bump in interest rates just because of what they are doing in Ottawa,” he told BNN in an interview.
In an effort to cool hot-housing markets in Toronto and Vancouver the federal government brought in a series of new mortgage rules. Portfolio-insured mortgages must now meet eligibility criteria that previously only applied to highly-leveraged insured mortgages, including a maximum amortization length of 25 years, a maximum purchase price of less than $1 million and minimum credit scores.
The new mortgages must also be stress-tested at a much higher interest rate to ensure the borrower can afford to pay the loan.
Those rules along with the potential cross-border fallout of U.S. stimulus coming from U.S. President-elect Donald Trump will likely push up mortgage costs in the coming year, says McLister.
The new rules are also making it difficult for many non-bank lenders to compete in the mortgage market, says McLister. Alternative lenders have been the source of some of the cheapest mortgages on the market and have seriously undercut many mainstream banks.
Several alternative lenders have already suspended operations in the wake of the new rules, he says. “It’s a great time to be a bank,” says McLister. “These mortgage finance companies can’t compete because of all these regulation changes — they can’t compete to the same degree. That’s pushing up rates in 2017.”