P.E.I. credit unions expect to benefit from new mortgage test rules
Iain Boekhoff | CBC News | Posted: January 3, 2018 11:00 PM | Last Updated: January 3, 2018
Credit unions not bound by same strict 'stress test' that banks now have to follow
P.E.I.'s credit unions expect to gain some new mortgage business because of the new federal "stress test" for banks.
As of Jan. 1, all home buyers looking for a bank mortgage will need to qualify at the rate negotiated plus two per cent, to prove they can afford their mortgage if interest rates rise.
Credit unions are provincially regulated, so they don't fall under these rules — as long as there is a 20 per cent deposit.
Ted Pahl, chair of the Credit Union Managers Association of P.E.I., said in high-volume sales areas, such as Vancouver and Toronto, it's expected credit unions may see as much as a 20 per cent increase in new mortgage business.
'Credit counselling'
Pahl estimates credit unions on P.E.I., especially ones in Charlottetown and Summerside, may see a five to 10 per cent increase.
"We have our provincially regulated guidelines that we use for our lending criteria and our qualification process and if they fit within that, we'll work together with them to put a mortgage together for them," Pahl said.
"We offer a bit of credit counselling at the same time, we want to make sure people can get into a house they can stay in because we don't want to be in a situation where they can't afford their house and we're in a situation where there's a delinquency or foreclosure."
20 per cent deposit
But he warns only people who can afford a mortgage will get one. Pahl said credit union home buyers who can't afford a 20 per cent deposit need mortgage insurance, and then the "stress test" does kick in.
He notes the biggest difference between credit unions and banks is that they're not driven by quarterly profits, but by tailoring financial plans for its members.
"Sometimes the right thing is putting them in a mortgage," Pahl said, "and sometimes the right thing isn't, and it depends totally on their personal circumstances."
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