New Mortgage Rules – October 17, 2016
Credit: Trevor Lindey
In an effort to help cool the real estate market in Canada the Department of Finance decided that they needed to tighten lending criteria for all Canadians. Unfortunately it appears that first-time homebuyers will be hit the hardest. The biggest change we were faced with was the implementation of a “stress test” on every insured mortgage.
Previously a client could elect to take a 5 year+ fixed term mortgage and the qualifying rate would be based on the contract rate. For example, a live deal submitted to a lender on Friday October 14, 2016 could have been qualified using a rate of 2.39% for a 5 year fixed term.
Effective Monday October 17, 2016 we are now required to use the Bank of Canada posted rate of 4.64% to qualify borrowers for that same mortgage. Even though your payments will be based on the contract rate the government wants to ensure borrowers are not overextending themselves should interest rates increase substantially.
To protect the anonymity of my client I have changed some details of this real life example. My client Mary was shopping for her first home. She had specific criteria like many people do when it came to purchasing her first home. She had an excellent job with excellent credit carrying no debt and a 5% down payment that she had worked extremely hard to save. Under the old legislation it meant that she had a purchasing power of $235,000. Anyone looking for a house recently knows how extremely competitive that price point is in this market.
Thankfully for her “THE” house came available and she was able to put in an aggressive offer and fortunately the agent and I were able to get her the home and arrange mortgage financing. If we were not fortunate enough to have won the bid on that house she would have been faced with qualifying under the new rules. That meant her maximum purchasing power dropped to $190,000 from the original $235,000; a price point that would have been even more difficult to find something in.
Do you need more information?
If you are buying a home with 20% down payment or more you might think you are in the clear but there are changes that the government will be implementing effective November 30, 2016. The details are extremely vague and will impact some lenders more than others. If you are interested in learning more about how these changes could effect you please feel free to write me at email@example.com and I would be happy to add you to my mailing list where you can keep up to date with current market information.
TREVOR LINDEY – Mortgage Agent
(905) 935-9839 www.mortgagesbytrevor.ca
Please feel free to contact Trevor, or someone on the Your Niagara Home Team to explain what the changes are. We are here to keep you informed!