B20 makes it hard to get approved
You may have heard your mortgage professional use the term “b-20” during your mortgage application. Typically, it is brought up when a client is declined. This is due to certain rules when assessing your income and your Mortgage affordability.
The 5 principles for sound residential mortgage underwriting:
1. All lenders must have a policy outlining risk appetite, governance, and oversight mechanisms to ensure lenders follow their own guidelines.
2. Lenders must confirm the borrower’s identity and background and demonstrate a willingness to service debt obligations promptly.
3. Lenders must assess the borrower’s capacity to service their debt obligations promptly.
4. Lenders must be satisfied that an independent third party has confirmed the value of the financed property.
5. Lenders must stress test their business portfolio for unlikely but plausible scenarios to determine the impact on their business. Lenders are expected to impose a higher level of due diligence on higher-risk deals, conduct ongoing risk assessments on the insurers they use, and generally pay close attention to the risk attached to their residential mortgage portfolio.
These factors above make it harder for a client to be approved for their mortgage.
One of the main items is the stress test. This one impacts the borrower the most. Currently, the stress test adds 2% to the mortgage rate, increasing the payment and ultimately lowering the client’s maximum mortgage approval amount.
Sometimes it makes sense as it protects the borrower and the market
This stress test seems a bit tricky and can affect your approval. The main reason is the industry wants to protect you as a borrower. If rates rise, the only way to perform affordability protection is by adding inflated costs to your mortgage payment.
If you ever need help understanding your approval or just want a second opinion to make sure you are at your maximum mortgage amount, give us a shout today. At Mortgage Suite, we help you understand your borrowing power with spreadsheets and reviews. We also encourage an annual review of your mortgage due to changing rules in the industry.
