The Quick & Easy Guide
to the New Mortgage Rules
Canada’s Finance Minister, Bill Morneau, has just announced a series of rule changes that all add up to stricter policies. These new rules are going to make it harder for many home buyers, whether you’re buying your first home, refinancing, or buying your fourth home. Fortunately, the new rules don’t go into effect right away, but my advice is this:
If you were planning a mortgage, move quickly.
Now, this isn’t a reason to panic and make rushed decisions, but keep reading to learn how these changes could make you qualify for a much lower mortgage.
The Quick: Lower Mortgage Amounts
When it comes to mortgages, you are going to have to qualify for a higher rate than you are actually obtaining. This rigorous method used to only apply to specific products and terms, like a variable rate mortgage, but now it can lower your qualification and lower the amount for which you’re approved on any type of product or term. To give you an example of a 5 year fixed, you would be able to now qualify at your contract rate of 2.49%, but after the new rules, you would be qualified at the Bank of Canada benchmark, 4.64%. This means more limited lender options and smaller mortgages.
The changes to “government-backed low-ratio insurance eligibility requirements” simply mean that even if you have a 20% or higher down payment, you might be held to the same standards* as anyone paying the bare minimum of 5%. Ultimately, if you don’t fit within these strict guidelines, this can make your mortgage dozens of thousands of dollars less. It’s possible that these changes do not affect you, but you’ll need to review your situation with a broker.
The Easy: October 17 Deadline
The mortgage insurance changes involving the stress test go into effect on October 17, as long as the mortgage is funded by March 1, 2017. This means that if you send in your application a few days early — to give plenty of time for processing — you might avoid the new limitations altogether. If you’re worried about not meeting the deadline, err on the side of caution and get your application together.
The low-ratio insurance rules go into effect on November 30, but again, you need to be insured by that time. In order to reach the deadline, your application needs to be sent in plenty early. Of course, if you take care of everything before the first deadline, you’ve got the best chance to dodge both of the changes.
There are two caveats to note: some lenders are preemptively enforcing the new rules, and a pre-approval obtained before the deadlines might not protect you against these changes. Talk to a broker to examine your situation.
*In order to be eligible for the low-ratio mortgage insurance, you must meet every one of these seven requirements.
- A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
- A maximum amortization length of 25 years;
- A maximum property purchase price below $1,000,000 at the time the loan is approved;
- For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the original amortization schedule;
- A minimum credit score of 600 at the time the loan is approved;
- A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent at the time the loan is approved, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
- A property that will be owner-occupied.
I can help you determine if you meet each of these and help you decide on the best course of action. Give me a call!