New Canadian Mortgage Rules Come Into Effect October 17th
The Federal Government recently announced that the qualification rules for insured mortgages will change, effective October 17, 2016. The new changes reduce your buying power, or what you can afford to purchase.
Effective October 17th, 2016:
Homebuyers seeking an insured mortgage, regardless of how much they have for a down payment, will be subject to a mortgage rate stress test beginning October 17th, 2016.
Before now, only those with less than a 20 per cent down payment were required to pass a stress test and have mortgage insurance backed by the federal government through the Canada Mortgage and Housing Corporation.(CMHC)
What does this mean for you?:
If you’re considering buying a home, and you require an insured loan, you must qualify for mortgage insurance at an interest rate greater than your contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate (at this time, 4.66%*).
The new rules will apply to new mortgage insurance applications and approvals received after the effective date, or when the homeowner enters a contract of purchase and sale for the property against which the loan is secured after this date.
Before October 17th:
A household income of $120,000 and a downpayment of $80,000, the maximum purchase price you would be approved for is $588,213 at a rate of 2.340% and a 25 year amortization. As of October 17th, with the same household income and downpayment, you would only be approved for $499,370.
Applications received by October 17th must be funded by March 1, 2017 or your home must be completed by March 1, 2017 to be exempt from the new qualification rules.