New proposed OFSI rules attacking your real estate wealth

[Willyboy]

I just came across an article that says some brokers found a loophole which is taking advantage of the 35 year amortization instead of the 25 year amortization to offset the new rule and cancel its effects.

Any comments from industry experts as to whether this works or it's just the imagination of a few brokers?

 

[Matt Crowley]

I don't see why that wouldn't work, loan payments a lot more sensitive to amortization timeframe than interest rates.

Government may legislate against those longer amortizations. There is a real impact in inflating asset prices with debt and longer amortization will feed asset bubbles as affordability is measured by Canadians on a monthly payment basis rather than duration based income vs. duration based liabilities, which is where we need to move towards.

 

[Vine Group]

At this time, it’s early to confirm exactly how lenders will be “interpreting” the new rules and what “loop holes” will be utilized. At the end of day, the regulators will be looking to lenders for feedback and modifications can and will most likely be made. Also, keep in mind if lenders get overly creative, the regulators will increase audits and lenders won’t want that.

 

[Thomas Beyer]

At this time, it’s early to confirm exactly how lenders will be “interpreting” the new rules and what “loop holes” will be utilized. At the end of day, the regulators will be looking to lenders for feedback and modifications can and will most likely be made. Also, keep in mind if lenders get overly creative, the regulators will increase audits and lenders won’t want that.

Seriously ?

The only “loophole” I see is amortization. What is the limitation, if any, here in Canada ? 30 years ? 40? 50 ? 100 ?

With the new, 2% increased qualification rates mortgages will drop almost 20% otherwise.

 

[Cory Sperle]

Sounds like a good time to sell anything questionable and buy back in a year or two.

 

[Thomas Beyer]

Sounds like a good time to sell anything questionable and buy back in a year or two.

I think that was in 2014 ..

 

[Matt Crowley]

I think that was in 2014 ..

Bubbly parts in Ontario and certain BC market right now, ripe for selling. (For those unfamiliar see page 4 of the Altus cost guide for a great analysis of Canadian cap rates http://www.altusgroup.com/news_insi...s-construction-development-budgeting-modeling)

HOWEVER, there is a pretty juicy suburban spread on cap rates in certain markets for certain product types. Mostly in Western Canada right now I see the opportunity for infill-level development in prime locations as the rental market will recover some legs and if land we held and condos flopped the rental story still makes a lot of sense.

 

[Vine Group]

Seriously ?

The only “loophole” I see is amortization. What is the limitation, if any, here in Canada ? 30 years ? 40? 50 ? 100 ?

With the new, 2% increased qualification rates mortgages will drop almost 20% otherwise.

All I’m saying is don’t make assumptions. There are already reports of concerns that regulators may increase audits if lenders use the amortization loopholes. We don’t make the rules, we just need to understand them and play within.

 

[Thomas Beyer]

All I’m saying is don’t make assumptions. There are already reports of concerns that regulators may increase audits if lenders use the amortization loopholes. We don’t make the rules, we just need to understand them and play within.

Is amortization a loophole? What long amortizations beyond 25 years, if any, are doable? I’d expect that you as a mortgage broker know that.


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[Vine Group]

Is amortization a loophole? What long amortizations beyond 25 years, if any, are doable? I’d expect that you as a mortgage broker know that.


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Thomas, I’m not sure what you are hinting at? The conversation is about a loophole to qualify with the proposed higher qualifier. The loophole that was suggested was using a longer amortization like 35 years to qualify. I’m saying investors should not rely on this loophole until its proven and lender publish the new regulations they will be enforcing.