New mortgage guidelines aimed at Canada’s sizzling real estate market might not be as ironclad as Finance Minister Mark Carney may have hoped. That’s because credit unions, which are provincially regulated, are not under the jurisdiction of the Office of the Superintendent of Financial Institutions (OSFI). This loophole may provide community credit unions with an important competitive advantage and borrowers with an attractive alternative to traditional lending sources.
The Rules in Question
Canada’s new mortgage rules are intended to restrict the flow of credit and consumer spending. However, credit unions believe that four of the rules shouldn’t apply to their lending pool:
According to the new requirements, the OSFI has:
- lowered the maximum size of popular home equity lines of credit (HELOCs) to 65 percent loan to value. Provincially regulated credit unions believe that they should still be able to offer the previous limit of 80 percent loan to value.
- made it a priority to compel lenders to be more caution when lending to self-employed individuals under the new mortgage rules. As such, traditional lenders are no longer permitted to offer so-called stated income mortgages. Credit unions, on the other hand, are maintaining a low standard for self-employed financing.
- required federally regulated institutions to use the five-year Bank of Canada posted rate to qualify buyers mortgage terms that are less than five years. In some provinces, if an applicant’s qualifications permit it, credit unions will default back to the more lenient three-year discounted rate.
- banned cashback down payments at federally regulated financial institutions, however some credit unions still allow them (including those in Alberta and Ontario).
Credit unions argue that, as a member-owned institutions, they tend to be more cautious than the nation’s big banks. Interestingly enough, this loophole could create a major competitive advantage for what is traditionally an overlooked sector of the banking market.
As such, credit unions that are not required to adopt OSFI-style guidelines should see an obvious increase in business (credit unions that choose to do business nationwide will be bound by OSFI’s rules).
Is a Credit Union Right For You?
Not sure if a credit union is right for you? Credit unions combine the attentive service of a cooperative with the financial regulations of the Canadian banking system, creating a unique customer-oriented borrowing experience. Here are just a handful of reasons why a credit union could be the best place to base your mortgage.
1) Competitive Rates
Even before the new mortgage loopholes emerged, credit unions have typically been able to offer lower lending rates. Since these institutions are member-owned, they have the ability to shave off costs and pass the savings along. As such, be sure to ask your mortgage broker whether or not any credit unions offer a “better than market rate” against other financial institutions, especially on a five-year fixed-rate mortgage.
2) Profits Stay in Your Community
Canadian credit unions donated roughly $37.5 million to charitable causes last year. Many credit unions also fund scholarships that directly benefit the families of their members.
3) Support Small Business Dreams
Business start-ups are expensive. Unfortunately, accessing capital from major lenders can often be impossible. Credit unions offer not just lenient lending requirements to entrepreneurs but also business development training and life skills management.
Credit unions offer an exceptional lending alternative to big banks. Ask your mortgage broker for more information.