Do You Understand the New Mortgage Rules?

As most of you have already heard, the federal government announced a change to the eligibility rules for new government backed insured mortgages. These pertain to mortgages with less than 20% down.

Effective October 17, 2016 all insured homebuyers must qualify for mortgage insurance using an interest rate that is the greater of their contract mortgage rate (meaning a discounted rate) or the Bank of Canada’s 5 year fixed rate which as of today is 4.64%.

Currently if a client who is high ratio (less than 20% down) wants to take a term less than a 5 year fixed or 5 year closed variable, they have to qualify at the 5 year posted. So basically this is in place right now for terms less than the years.

The changes are expected to impact first time buyers the hardest. As an example, a Canadian earning $70,000 a year with enough saved for a five per cent down payment, and carrying $500 a month in non-mortgage monthly debt payments such as a car loan would qualify for a loan that would allow them to buy a house worth about $370,000 based on a five-year fixed-rate mortgage of 2.44 per cent.  However, under the new stress test using 4.64 per cent, that same home buyer could only afford to buy a home worth about $280,000.

Speak to your lender to find out what the new rules mean for you.

For more information about the new rules click here