How do the new mortgage rules affect you?
Last week the Federal Government introduced new mortgage rules that will take effect
Oct 17, 2016. These new rules only apply to buyers who have less then 20% down
payment and thus have to apply for mortgage insurance. According to the previous rules,
lenders would qualify buyers based on the current 5 year fixed rate. According to the
new rules buyers will now have to qualify based on the Bank of Canada posted rate
which as it stands today is 4.64%. So how much of a difference will that make to you?
Looking at the following example:
Current annual family Income $87,000
House hold debt payments $600
Property tax payments $3,000 (yearly)
Down payment 5%
Mortgage rate 2.49%
Effect:
Qualifying for a mortgage and applying for mortgage insurance under current rules,
Family A qualifies for a purchase price of $450,000.
Qualifying for a mortgage and applying for mortgage insurance after October 17, 2016,
given the need to qualify at the Bank of Canada rate of 4.64%, Family A qualifies for a
purchase price of $360,000.
According to this example Family A has 20% less buying power, which is a considerable
amount of capital. Saying that most buyers do not max out their purchasing power based
on what they qualify with a lender. Most buyers generally choose an amount less then
what they qualified for. However now, buyers may in fact push the envelope of what
lenders tell them they can afford knowing there is a built in buffer if interest rates
increase over the coming years.
If you have been pre-approved prior to October 14 th , 2016 lenders may use the contract
rate opposed to the higher benchmark rate, which will mean you will have until March
2017 to close on your property.
If you haven’t spoken with your lender since the rules were announce October 3, it would
be wise to check in and see how it specifically affects your situation. If you have not
spoken with a mortgage lender feel free to call Koalby Ashkanase at 4039783898 or email her at koalby@mortgagetree.ca to get further details.
The Calgary Homefinders