Need a reason to discuss debt with your clients?

Over the years you’ve probably spent a great deal of time explaining insurance or investment industry changes to your clients. It’s one of the many reasons why clients appreciate you as an advisor.

So, how often, do you ask about changes to financing one of their biggest assets – specifically their home?

New mortgage regulations taking effect on January 1, 2018, are just one of many changes that have complicated home ownership over the past decade.

Take a moment to review the attached graphic illustration which outlines many of changes that have occurred over the past decade by government agencies overseeing Canada’s housing market. The cost of home ownership and qualifying for a mortgage have steadily increased since 2008.

Now is the time to start the conversation, by letting us help you explain the Office of the Superintendent of Financial Institutions’ (OSFI) updated guidelines for residential mortgage underwriting.

Among the changes are a new “stress test” for Canadians who will be borrowing not more than 80% of the home value. There is already a stress test in place for Canadians borrowing more than 80% of the home value. Both of these stress tests are meant to protect new Canadian borrowers from future interest rate increases at renewal or at other “life events” which may require a change to the mortgage.

As of January 1, 2018, the new qualifying guidelines for Canadians borrowing 80% or less of their home value will be the greater of:

The Bank of Canada Qualifying Rate, which is currently 4.99%*, or
The borrower’s contract rate +2%*

The contract rate refers to the rate on the mortgage document. For Manulife One, as an example, the contract rate would be the base rate +2%. Currently the base rate is 3.70%**. So, the qualification rate will be 5.70%**. It’s important to note that these changes affect the qualification rate only and not the interest rate charged to the borrower.

Why does this matter?

Simply put, a higher qualification rate means less borrowing power for your clients. As an advisor, this means access to less equity, which translates to less money to consolidate debt and less room for investment and cash flow strategies.

Due to the strength of applicants we receive from our advisor clients, for the majority of our referrals these guidelines will have minimal impact. We do expect more clients will be forced to accept lower Manulife One credit limits than in previous years.

What can you do?

Reach out to clients who you have had cashflow discussions and encourage them to take action soon, to ensure they are able to maximize the access to their home equity (their money). Even if the funds aren’t required until some future date, putting the Manulife One in place now could help ensure equity is available when your client needs it.