New Mortgage Rules? You Still Have Options!
Coming in January, things are changing as far as mortgages in Canada which explains the spike here in Victoria of people trying to get into the market before things become more challenging. The way it stands now, if you have less than a 20% down payment, your mortgage has to be insured, usually by CMHC. Mortgages with more than 20% are exempt from any stress test. Next year, no matter what you put down, you’ll have to prove if rates go up, you’ll be able to pay your mortgage.
The rules now require the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada (presently 4.89%) or 200 basis points above the mortgage holder’s contractual mortgage rate. The main effect will be felt by first-time buyers because no matter how much money you put down as a down payment, you will still have to pass the stress test. For some that means 20% less house.
One gets the feeling that the rules are changing because the Bank Of Canada is thinking about gradually raising rates over the next few years. This is just preparation.
THE GOOD NEWS: There are ways around it because if you don’t pass the new stress test, you have three options. You can either put down more money on your down payment to pass the stress test, or you can add a co-signer onto the loan that has income or simply decide not to buy right now. As Realtors, we can expect a lot of new offers to be assigned and a lot of new mortgages to be co-signed by relative.
Also, you have to remember that usually you are qualified already for a mortgage that may be far greater than you actually spend, so you wouldn’t be affected. We advise that you talk to a mortgage broker about what you can afford and if you’d like get into the market or sell before the rule change, we would be happy to help. -Michael & Lisa