How the new math on LOC’s is calculated.
Below are how the banks now have to take your debts into account for doing the qualifying math for your purchase. A bit complicated and not intuitive at all!
Mark Herman, Top Calgary, Alberta mortgage broker for renewals.
Secured LOC – Calculate the monthly payment on the balance amortized over 25 years using the contract rate. **Must have the statement showing the contract rate otherwise the current BoC rate will be used.
Unsecured LOC – or a Personal Line of Credit = 3% of the outstanding balance a month for the payment – so 20,000 owing @ 3% ends up as a $600 a monthy payment. YES, it is unfair.
Student Loans –
- If it’s a true student loan it should be reporting as an installment with CDA. If there is no payment, the bank will use 1%.
- If the debt is reporting to the bureau as a revolving LOC, and the client is paying interest only payments, the bank must use 3%;
- if we can provide proof that the LOC has a fixed payment and the loc has been re-written as a loan and is no longer revolving the bank can use this payment vs. 3%. In some cases, this may already be the case but it still reporting to the bureau as revolving.