Canada’s New Mortgage Regulations And How Will They Impact You
As part of the Government of Canada’s new national housing measures strategy to help stabilize the real estate market, mortgage regulations will be undergoing a serious overhaul that will affect many Canadians. In short, these changes will make it more difficult for homebuyers to qualify for a mortgage in today’s market.
The new policy outlines that all new insured mortgages must undergo a “stress test” to ensure a borrower will be able to continue to make their mortgage payments if interest rates are increased. The Bank of Canada has set a benchmark rate of 4.64%, which all borrowers must qualify at based on their income, even if they secure a lower interest rate. This requirement will apply to all insured mortgages, including fixed-rate mortgages with terms of five years and more.
As an example, a borrower with an annual income of $100,000, putting down $40,000, used to qualify for a mortgage of up to $665,000. However, under the new rules, that same individual would only qualify for a mortgage of up to $505,000, a significant decrease of 24 per cent.
The changes will not affect homeowners with an existing insured mortgage or those renewing existing insured mortgages. It is also important to note that these changes only apply to insured mortgages, which include those covered by the three main insurance providers for high-ratio mortgages CMHC, Genworth, and Canada Guaranty.
As these changes become effective October 17, 2016, any mortgage pre-approvals received before this date will no longer be accurate or valid, meaning borrowers will have to get re-qualified. Mortgage deals must be 100 per cent secured prior to the cut-off date when these new changes come into force to be valid.
While these changes are mainly targeted towards high ratio purchases, they will impact the market as a whole. It’s important to reach out to your favourite mortgage broker should you have any questions as to how these changes may affect you and your mortgage.