01 Nov 2016

    How New Mortgage Rules Will Affect You

    A new federal rule was announced on Oct 3, 2016 which will make it more difficult to quality for a mortgage. A new rule that very few knew to prepare for before it was released to the public. 

    As of Oct 17, 2016 home buyers will undergo higher scrutiny when looking to qualify for a mortgage. Starting on the 17th all mortgages that require default insurance (which is usually those with less than a 20% down payment) will be required to prove that they can qualify based on a 4.64% “benchmark rate” set by the Bank of Canada.

    This means the mortgage amount you'll be able to qualify for will likely be a lot smaller than before.  Genworth Canada actually estimates that the new rule means up to one-third of its first-time homebuyers will not qualify for a mortgage.

    Now all potential buyers will be subject to a mortgage rate "stress test". Prior to October those with less than a 20% down payment were required to pass a stress test in addition to having mortgage insurance backed by the federal government through the Canada Mortgage and Housing Corporation.

    Those putting down more than 20%, who are seeking an insured mortgage through a private insurer, were not subjected to the stress test or other such scrutiny. But now they too, may have to do the test in certain situations, beginning November 30, 2016.

    The stress test measures what you can afford, and under what circumstances you can afford it- for example, if you lost your job or if there was an unexpected increase in mortgage rates.

    What does this mean for you?

    • First Time Home Buyers will need larger down payments - We all know that this is the hardest part of buying a house to begin with, and has now gotten harder.

    • You may have to settle on buying a cheaper home - but hey that means lower monthly payments.

    • It might mean that eventually mortgage rates and fees for consumers will go up.

    • People trying to enter the real estate market may be priced out permanently.

    • If you are selling, you may just have to lower the price in order to sell to “the average” home buyer.

    Below is an example of how a mortgage could be assessed in the future, under this new rule:

    Before New Qualifying Rules (Using 2.49% interest rate)

    · Purchase price $600,000
    · Down payment $35,000
    · Minimum Income Needed – $93,000/year

    With New Rules (Qualifying at 4.64%)

    · Purchase price $600,000
    · Down payment $35,000
    · Minimum Income Needed – $114,000/year

    In my opinion this is going to put the housing market into the hands of those who have a lot of money, and take away from the “everyday person” who is trying to get their foot in the door for home ownership. I don't think the time frame that was given for people to get familiar with, or plan for this change, was reasonable. Those having difficulties entering the market and who were probably already at a disadvantage have now had the dream of homeownership pushed even further away.

    Tell us your thoughts on this? Do you think this is going to benefit or weaken the real estate marketplace?

    *Disclaimer:  All information is based on the agent’s knowledge. It may not be the same in every situation and may change as rules and laws change.

    Read 2236 times Last modified on Saturday, 05 November 2016 09:30
    (1 Vote)
    Kandice Henry

    Kandice Henry is a Real Estate agent with CityScape Real Estate Brokerage. She has been in the Real Estate field for over 10 years. Her hands-on knowledge began when she purchased, flipped, and leased her own properties.

    Two years ago she began her career as an agent and has had much success helping clients purchase and lease in both the residential and commercial sectors. She is a hard-working agent who truly cares about finding the perfect fit for her clients. Kandice's resourcefulness lends to her full, experienced team behind her that is ready to help you close your next lease or purchase.




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