Upcoming changes to mortgage qualification made by Ottawa could affect your ability to purchase a home after October 17th, 2016
The Federal Government will be requiring mortgage lenders in Canada to conduct what is being termed a ‘stress test’ for mortgage borrowers taking out a fixed rate mortgage of 5 years or longer. The stress test involves qualifying these borrowers at the Bank’s posted 5 year fixed rate (4.64% as of today), instead of at the contract rate that they have obtained on their mortgage (as low as 2.35% today). This higher qualification rate will result in prospective mortgagors being able to qualify for lower mortgage amounts.
To demonstrate the impact of this change on mortgage qualification, let’s look at how the move would affect someone making $75,000, and has saved up $35,000 for down payment -and no other debt. Using today’s rules, this individual would be able to qualify for a maximum mortgage of $408,000. Using the new qualification rules, as of October 17th, this same individual will only be able to qualify for a maximum mortgage in the amount of $308,750 – a WHOPPING $99,250 drop!
If you are looking at purchasing a home within the next 2 years, it might be time to consider purchasing before October 17th.
This is now the second measure taken by the Liberal Government since taking office; last year down payment requirements for homes over $500,000 were changed, requiring a 10% down payment on all funds over $500,000 (with 5% still acceptable below $500,000).