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When you refinance your mortgage, it is quite simply to get a better financial place, but market uncertainties have made it more difficult than a month ago to refinance your home. There are three main reasons:

  • More stringent scrutiny of the Applicant’s income and employment
  • Lower Appraisal Valuations than expected
  • Lender Cutbacks in Maximum Loan-to-Value Ratios

Tougher scrutiny on Applicants income and employment: Lenders are more careful about income stability in the current market. They are not just concerned about whether you have sufficient income today, but also whether your employment is safe and if you will continue to have an income in the months ahead. (According to the Conference Board of Canada, a combined 2.8 million jobs could be lost during March and April, equal to nearly 15% of total employment). So even if you had sufficient income to qualify for the desired mortgage amount two months ago, that might not be the case now, and as such lenders have become more conservative. The Lenders now want to see all income documents upfront. The argument is that if the borrower’s income and employment cannot stand up to scrutiny, there is no point going further.

Appraisal Valuations are coming in lower than expected: Appraisers rely on recent sales data to come up with comparable properties for their appraisal reports, but sales are down so much since mid March there are fewer to compare too. It appears that the appraisers are being more cautious today, and there is nothing on the horizon that’s likely to change this. No-one knows how fast buying activity will pick up when the dust settles, so cautious valuations are probably the new normal.

Lower Loan-to-Value (LTV) lending Ratios: The maximum you can refinance your property is up to 80% of the appraised value of your home, but this percentage will face downward pressure in the coming months. Right now, even private lenders are exercising more caution than usual, pulling back on their maximum LTV.

Its a completely different world for mortgage refinancing than just a month ago. Factoring together the loss of income, lower real estate values, tougher appraisals and lower loan-to-value ratios, it’s not hard to understand why the landscape for mortgage refinances has cooled considerably, but as informed mortgage brokers, we can help you with the process.

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