BREAKING NEWS: This is a BIG change for anyone qualifying for a mortgage
 October 4 2016     Posted by Tina Meraw

The Minister of Finance announced a new mortgage rule that will be starting on Oct. 17, 2016. 

Borrowers who take out insured mortgages that are fixed-rate loans of 5 years or longer, will now be subjected to a more stringent “stress test”; ending the current two-tier system.

Existing rules: home buyers who take out a mortgage term less than 5 years or a variable interest rate have to qualify at the Bank of Canada’s posted rate to prove they can afford the mortgage payments at a much higher interest rate than what they will actually pay. Borrowers who take out fixed-rate insured mortgages of 5 years or longer, have their income tested against the interest rate that they will actually be paying. The end result is that borrowers can now typically qualify for much larger mortgages if they opt for a longer-term, fixed rate mortgage.

Under the new rules: all borrowers who have insured mortgages (less than 20% down) will have to qualify at the Bank of Canada posted rate (4.64% as of today), which is now significantly higher than what they will actually be paying. The rule applies to all insured mortgages, including fixed-rate mortgages with terms of 5 years and more. Homeowners with an existing insured mortgage or those renewing existing insured mortgages are not affected by this measure.

Here is an example to help you understand the changes...

EXISITING RULE:

Purchase Price: $500,000

Qualifying Interest Rate: 2.44%

Qualifying Monthly Payment: $2050

Qualifying Income Required: $87,000

NEW RULE:

Purchase Price: $500,000

Qualifying Interest Rate: 4.64%

Qualifying Monthly Payment: $2580

Qualifying Income Required: $107,000

You can see that with the new rules you have to qualify for a mortgage payment that is $530 more a month than what you would actually be paying for the mortgage. All borrowers will qualify for approximately 20% to 25% less after the new rules take affect.

If you are House Hunting or Pre Approved make sure to give us a call. If you have any questions, we can help you understand the new rules and how they will impact you and your financing options.