New Regulations, higher qualifying rate

2016-10-03 | 13:06:31

Joel's Mini Blog: 
In the News this week - 

As of Oct. 17, the government says “all insured homebuyers must qualify for mortgage insurance at an interest rate the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate,” which is currently 4.64%.

The government notes that this requirement is already in place for high-ratio insured mortgages with variable interest rates or fixed interest rates with terms of five years or less.

For homebuyers who can’t make a down payment of 20% or more, the new rules will drastically affect how much they can afford.

Let’s use the example of a household with an annual income of $100,000. They have $40,000 saved and qualify for today’s best mortgage rate

Under the current rules, they can currently afford a home worth $665,435, But under the new rules, they can now only afford $505,762—a difference of $159,673.
 

The government notes that the announced measure will apply to new mortgage applications received on Oct. 17 or later.

But it won’t apply to mortgage loans where, before Oct. 3: “a mortgage insurance application was received; the lender made a legally binding commitment to make the loan; or the borrower entered into a legally binding agreement of purchase and sale for the property against which the loan is secured.”

Mortgage loans for which mortgage insurance applications are received after Oct. 2 and before Oct. 17 are also not affected by the rule change, as long as the mortgage is funded by March 1, 2017.

“These measures will apply to new mortgage insurance applications and will not affect Canadians with existing mortgages,” says Finance Minister Bill Morneau.




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