Breaking Down the New Changes to Mortgage Rules
What does this mean?
The Department of Finance has implemented new mortgage rules with new restrictions in hopes to slow down the booming Toronto and Vancouver home markets. This may slow down and moderate the appreciation of home price appreciation year over year. The value of homes have increased in the GTA at 21% year over year.
These new regulations are aimed at protecting the financial security of Canadians and supporting the long term stability of the housing market in Canada.
**The change is a Mortgage Rate “STRESS TEST” to all Insured Mortgages**
Under the new mortgage rule regulations, all insured mortgages, regardless of the term, whether “fixed or variable, you will now have to qualify on the posted Bank of Canada rate and NOT the discounted rate. Your GDS and TDS ratios are still used in qualifying for mortgages. This has not changed.
For example, if the qualifying mortgage rate total is 4.64%, the contract mortgage rate amount you pay is typically about 2.44%. This amount is what you are paying for borrowed money which has not changed. Affordability stays the same. Currently the Bank of Canada rate is 0.5% and has been for a long period of time. This has not changed. The bank institutions add their prime lending rate of the 2.2%-2.7% to the posted Bank of Canada rate.
Essentially this change will affect about 25% of the home buying market, which are purchasers placing less than 20 % of a down payment on a property. Less than a 20% down payment will require a mortgage insurance from your lender. This is where the new rules directly affect this group of purchasers and will limit their spending.
If you don’t have a 20% down payment, it may mean you will need more time to save a bit longer, or get a top-up loan from family to equal 20% down, or purchase in a lower price category by compromising on your wants which your agent will be able to assist you with.
Regardless of any situation, it doesn’t cost you anything to get pre-qualified. This is always the first step we recommend you do, before you begin your exciting journey to purchasing a condo or home. This will give you your comfort range, allow you to know exactly where you stand and assist with a good starting point to begin a plan.
Hope this clarifies some of the confusion out there. Dominion Lending Centre breaks down the new changes to the mortgage space in more detail answering your questions to What, Who and Why?
Click her to read: New Mortgage Rule Changes-What Does This Mean?
Any questions, just ask or text. If you have already been pre-qualified and want to get started on your home search, reach out or text us at 647-680-1699. If you would like to see where you stand and begin a plan to purchase your first home or condo, lets get started. I promise– it’s painless!