In a recent conversation with Matt Vasselin, we dove deep into how mortgage affordability can be improved for individuals struggling to qualify due to disproportionate income-to-debt ratios. It's no secret that for many, high ratios pose a significant hurdle. However, Matt shared two innovative solutions that Aveo, a mortgage lender, is implementing to tackle this problem.
Firstly, Aveo has introduced a "No Stress" product. This revolutionary approach abolishes the stress test typically required for A or B mortgages. In the conventional scenario, a prospective borrower must qualify at a contract rate increased by 2%. For example, if you were obtaining a rate of 4.69% on an A mortgage, you'd have to qualify at a rate of 6.69%. This is what's known as the stress test.
Aveo's new product, however, allows borrowers to qualify directly at the contract rate. For instance, if the rate is 5.99% today, you qualify at the same 5.99%. Astonishingly, this qualification rate is often lower than the rate for A mortgages, effectively alleviating many ratio-related concerns. In practice, this means clients can get around 15% more on their mortgage than what they'd usually qualify for under a stress-tested product.
The second solution offered by Aveo revolves around their extended ratio products. Standard guidelines for an insurable loan typically propose ratios of around 39/44. On the B side, these numbers can vary significantly between lenders. For Aveo, their standard product offers a 45/50 ratio, with other products allowing ratios as high as 60/60.
However, it's essential to understand that risk is a delicate balancing act for lenders. The higher the risk they undertake in one area, the lower they'd want it in another. Hence, when dealing with high ratios, lenders often limit the Loan-to-Value (LTV) to approximately 65%. By reducing the risk on the LTV front, they can afford to take on more risk concerning ratios and affordability, accommodating even a 60/60 ratio at 65% LTV.
In conclusion, thanks to products like Aveo's "No Stress" mortgage and their extended ratio offerings, borrowers experiencing difficulties due to high income-to-debt ratios now have more accessible paths to homeownership.