Canadian Mortgage Rule Changes

By now I am sure you have heard the announcement by the Finance minister with regards to the recent mortgage rule changes.  Let me break down the rule changes as to how they will affect you. 

The big change that will affect the majority of borrowers, especially the first time home buyers is the change to how much you qualify for with an insured mortgage.  Insured mortgages can include mortgages with more than 20% down.  Up to now, we have been able to qualify borrowers on the 5-year fixed mortgage at the going rate, which today would be 2.39%.  That said, at the same time if you selected a mortgage rate of less than 5 years or a variable you would have to qualify at the benchmark rate which is currently sitting at 4.64%. 

Under the new rules for insured mortgages, even if you select the 5-year fixed rate, or a term higher than 5 years you will be undergoing what is called “stress testing”.  The term “stress testing” refers to making all borrowers qualify at the benchmark rate, which again is 4.64%.  This is to be done to ensure that all borrowers could afford a higher rate should interest rates rise for their renewal at the end of their term.

To simplify, I have broken it down as what it would take to qualify now and what it is going to take to qualify after the rule changes.

$450,000.00

Proposed Purchase price (5% down means qualifying for $427,500)

$67,504.73

Under the current rules, this is how much income you would need to qualify for a 5-year fixed rate (2.39%) with 5% down.

$85,128.31

Under the new rules, this is how much income you would need to qualify for a mortgage with the Benchmark rate of 4.64%.

So as you can see it will seriously increase the amount needed to purchase a house or qualify for a new mortgage.  This change will affect not only house purchases but refinancing, mortgage transfers and more.

There are some other notable changes, for instance as a result of the recent rule change announcement some lenders have already stated they will no longer receive stated income applications and rental property applications.  Although the details are vague, there will likely be more changes to some of the products the lenders are currently offering. 

Some other changes include;

• New reporting rules for primary residence capital gains exemption
• As of November 30^th, the government will impose new restrictions on when it will provide insurance for low-ratio mortgages
• The government is launching consultations on lender risk sharing

As your mortgage broker, it is my job to continue to find creative solutions to work with the rules.  I think that these recent rule changes are going to make the landscape for mortgages a little more interesting.  If you are would like more information on the changes or anything else, please contact me.

Shawn Mooney |Bayfield Mortgage Professionals Ltd.

Broker of Record

Your Mortgage Broker for Life

Bus. # 403-945-8769 | Mobile # 403-828-1838

Email: mortgages@shawnmooney.com

Website: www.shawnmooney.com