Government of Canada New Mortgage Rules - October 2016
Buyers with less than a 20% down payment:
- As of October 17th, all mortgages regardless of the term will need to be qualified at 4.64%
- Why? The government wants to allow lending up to what a client can afford if rates were at 4.64% – even if they are only paying 2.39% for their mortgage.
- As an example, a client of mine with 10% down was pre-approved for a 5 year fixed rate at 2.39% for a mortgage amount of $400,000. With the new change, this same client will keep his rate of 2.39% but can only qualify for $320,000 based on a rate of 4.64%. That is a 20% decrease in what they can afford! Prior to the news the client was able to qualify at their approval rate of 2.39% on a 5 year fixed term.
- 1-4 year terms, and variable rate terms have always qualified at 4.64%, now we add in the 5 year term that most buyers with less than 20% down take.
- Clients who already have accepted offers with a firm mortgage approval prior to Oct 17th are exempt from this as long as the completion date is prior to March 1, 2017
- They will still have to pay the insurance premiums and they have not changed. Max 25 year amortization still remains in effect.
What to Do
- If you have an accepted offer, make sure you have a mortgage approval prior to Oct 17th.
- If you are in the market and shopping, try to get your offer accepted prior to Oct 17th so that you can still qualify as per current guidelines. The mortgage approval would need to be submitted prior to this day which is a Monday so likely by Friday October 14th.
- If you are shopping and likely won’t have an accepted offer by Oct 17th, call a mortgage broker to find out what you qualify for based on the new change.
- Note that every situation is different and the changes may have no effect on the buyers depending on their income etc, but please double check with a qualified mortgage professional.
Buyers with 20% or more down:
- Changes are coming as of November 30th. Still waiting on clarification ( announcement was not laid out clearly ) but there is speculation that similar qualifying rules will apply at 4.64%.
- There is also talk of
- eliminating the 30 and 35 year amortizations meaning a cap at 25 years, which will significantly reduce the amount a buyer will qualify for.
- Implementation of minimum credit score requirements.
- There is talk that these rules will only apply to owner-occupied properties and not for rental/investment properties.
- These changes may only apply with certain lenders given on how they handle insurance requirements behind the scenes – We will update once info is available.
What to Do
- If you have an accepted offer, make sure you have a mortgage approval prior to Nov 30th .
- If you are in the market and shopping, try to get your offer accepted prior to Nov 30th so that you can still qualify as per current guidelines.
- If you are shopping and likely won’t have an accepted offer by Oct 17th, call a mortgage broker to find out what you qualify for based on the new change.
- Note that every situation is different and the changes may have no effect on the buyers depending on their income etc, but please double check with a qualified mortgage professional.
Summary:
- All these changes are going to have an impact on how much a buyer can qualify for. Time will tell if it will have an impact on the housing prices given affordability of buyers. May be a situation with a lot of low-ball offers with the plea of “ this is all we can afford now…”. If the buyer’s market as a whole now has these restrictions put on them, sellers may have to expect a longer wait to get their price as their potential buyer pool is about to get a lot smaller; or, of course, the reason why these changes have been put in place – to further cool the market and bring down prices.
- Pending further clarification on point #2, having a 20% or more down payment may not give buyers any benefit in terms of qualifying for a mortgage compared to having less than 20% down – aside from not having to pay the insurance premiums. Previously buyers could qualify with a 30 or even 35 year amortization which would give them more room in terms of spending. Also, they didn’t need to qualify at 4.64% for a 5 year fixed rate or in many cases even for a variable rate. Hoping the clarification over the coming days will give us some good news on this one!
