What Will the New Mortgage Rules Mean for Your Family?

On January 1st, 2018, new rules on Mortgage Lending introduced by OSFI (Office of the Superintendent of Financial Instiutions) take effect. 

The rules now require the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada (presently 4.89%) or 200 basis points above the mortgage holder’s contractual mortgage rate. The effect of the changes will be huge, resulting in a 20% decrease in affordability, meaning a first-time homebuyer will be able to buy 20% less house.

 

What Does This Mean? Let's Break it Down

In this case, the family’s mortgage rate, plus 200 basis points, is less than the Bank of Canada five-year benchmark of 4.89%.

A family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 2.83% amortized over 25 years can currently afford a home worth $726,939.

Under new rules, they need to qualify at 4.89%

They can now afford $570,970

A difference of $155,969 (less 21.45%)

If you are a first-time buyer, what are your options? It may mean renting a little longer and waiting for your income to go up beore you’re able to buy your first home. Alternatively, some first-time buyers will buy less—maybe a condo instead of a pricier detached home. Or, the new buyers may opt to get a co-signer to qualify under the new rules.

To find out how your family's home affordability will be affected, You can use Ratehub.ca’s free online mortgage affordability calculator .

 

 


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