You’ve probably been hearing a lot of buzz lately about the new mortgage regulations coming into effect on January 1st.
Concerned that this might affect you? Let us help.
Who Needs to Know?
The changes will affect applicants for uninsured mortgages –this means borrowers who have a down payment of 20% or more.
The new rules apply to buyers who are applying for a new mortgage, or homeowners renewing their mortgages through a new lender. Lenders may choose to apply these regulations to existing mortgage customers who are renewing, as well (but they don’t have to).
What Are the Changes?
Currently, the rules state that only borrowers with less that 20% down, who are applying for government-backed, insured loans (also called “high-ratio mortgages”), need to pass a “stress test” to make sure that their finances can withstand an increase in interest rates.
Under the new regulations, all mortgage applicants (however healthy their down payment) will be subject to these same restrictions. In order to qualify for a mortgage, all borrowers must prove that they can afford at least a 2 percentage point increase in their rate, or the Bank of Canada’s benchmark rate (currently 4.89%), whichever is greater.
That sounds confusing! Basically, it means that, in order to secure a 3% mortgage rate, a potential homebuyer will now need to qualify for a 5% rate. To get a 2% rate, the borrower will need to be able to carry a mortgage at the BoC benchmark rate of 4.89%.
All of that translates into this: mortgages secured after the rate change will lose about 21% of their purchasing power.
If you can afford to buy a home for $700,000 today, you will only be able to buy a home worth $553,000 in 2018!
So, What Happens Now?
If you’re thinking of buying a home, now is the time to lock into a mortgage rate that gives you more flexibility in your purchasing choices.
You should always get pre-approved for a mortgage before you begin your new home search.
Speak to your financial institution or mortgage broker before January 1st to determine what size mortgage you qualify for (right now, and also under the new changes).
Once you know what you can afford, the team at Points West Realty Group is here to help you find the perfect home.