You may have heard that mortgage rules are set to change, again.
This time it pertains to the mortgage approval process for Buyers seeking convention mortgages. As of January 1, 2018, all borrows, even those with 20% or more saved for a down payment, , (conventional mortgage), will be required to pass the bank of Canada’s stress test for higher rates, even though you will still be borrowing on the regular rate your mortgage amount will be based on the higher stress test rate.
That means you will likely qualify for a significantly lower mortgage in the new year, than you do right now.
You have until the end of the year to get an accepted unconditional offer on a property to avoid the new rules.
Contact me soon if you need to step up your timeline.
It’s official, getting a mortgage in Canada is about to get tougher, even if you put 20% or more down.
As of January 1, the minimum qualifying rate (or stress test) for consumers getting uninsured mortgages—borrowers with a down payment of 20% or more—will be the greater of the Bank of Canada’s five-year benchmark rate (presently 4.89%) or 200 basis points above the mortgage holder’s contractual mortgage rate. Federally regulated financial institutions “are not expected to re-apply the qualification rate assessment to existing borrowers that are renewing mortgages.”
According to RateHub.ca, the changes will have an impact on mortgage affordability. Assuming monthly heating costs of $150 and monthly property taxes of $400, here are two examples of how the changes will affect affordability:
Scenario No. 1, the mortgage rate is 2.83 per cent.
Under incoming rules, the mortgage application faces a stress test using the Bank of Canada’s current five-year benchmark rate of 4.89 per cent. That’s because the central bank’s posted rate is higher than the family’s negotiated rate plus 200 basis points (4.83 per cent).
Scenario 1 result: You would qualify for 726939 under current rules — but as of January 1st you will only qualify for 570970. That’s $155,969 less house than before.
For Scenario No. 2, the mortgage rate is 3.09 per cent.
Under incoming rules, the family would be stress tested at 5.09 per cent. That’s because the negotiated rate plus 200 basis points (5.09 per cent) is higher than the BoC’s posted rate (4.89 per cent).
Scenario 2 result: You would qualify for 706692 under current rules — but as of January 1st you will only qualify for 559896.That’s $146,796 less house than before.
Either way you cut it, your purchasing power will decrease when the new rules come into effect on Jan. 1, 2018.
You have until the end of the year to get an accepted unconditional offer on a property to avoid the new rules. Contact me soon if you need to step up your timeline.
You can read more from the Globe and Mail Article on New Rules here.