Starting January 1, 2018 new mortgage rules will come into effect. One of the biggest changes this will have is on uninsured mortgages (mortgages where home buyers put down 20% or more) will now be required to pass a “stress test”. Since 2016, only buyers with less than a 20% down payment and an insured mortgage underwent a financial stress test. This new rule now means that the “stress test” will now affect all homebuyers and they must qualify for mortgage loans at the higher Bank of Canada benchmark rate (currently around 4.89%) or the mortgage rate offered by the lenders, plus 2 points. This new rule is to help ensure that the borrower would be able to pay the loan back if interest rates were to increase. How will this new mortgage rule affect Canadian Home Buyers?
Essentially, the new qualifying mortgage rules will require home buyers to qualify at a rate that is 2% higher than that of their negotiated or contract rate – ensuring that the majority of homeowners pay a minimum of 20% on a down payment, in addition to having the sustainable ability to afford ongoing payments.
Rule Changes in the Canadian Real Estate Market
Below are some of the changes that have been affecting the Canadian Real Estate Market over the past year:
- Restriction of mortgage insurance to owner-occupied dwellings, shorter maximum amortization period, purchase price of less than $1 million, and a minimum credit score of 600.
- Restriction of mortgage insurance to owner-occupied dwellings, shorter maximum amortization period, purchase price of less than $1 million, and a minimum credit score of 600.
- Maximum Gross Debt Service ratio of 39% and Total Debt Service ratio of 44% – calculated using the higher stress-test rates.
- Increase in the mortgage default insurance premium payable on insured mortgages to as high as 4% – effective March 2017.
- Imposition of a 15% foreign buyers tax in British Columbia (August 2016) and Ontario (April 2017), plus other control measures.
- A similar stress-test for uninsured mortgages where the buyers have 20% or more of their down payment – starting January 2018.
- A stress-test will also be conducted when homeowners who are refinancing their mortgage change lenders.