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NOT ALL DOOM AND GLOOM
NEW CANADIAN MORTGAGE RULES EFFECTIVE OCTOBER 17, 2016.
The Minister of Finance announced on Monday new Canadian mortgage rules effective October 17, 2016. The new rules will impact high ratio buyers - those with less that 20% down payment. Other rule changes are expected to follow so stay tuned for details as they unfold. The important thing to remember is that this is not the end of the world! Rather, it is the time when you really need the voice of reason from an experienced Dominion Lending mortgage professional
Currently a home buyer with less than 20% (high ratio) requires mortgage insurance through CMHC or one of the private insurers. The financing rules for this purchase differ from those buying a home with 20% or more down payment. However, both types of buyers have one rule in common - to access short term fixed rates (1-4 years) or a variable rate mortgage they must qualify at the benchmark rate (currently 4.64%). They don't pay that rate, but it is a metric used to qualify for access to the variable or short term rate products.
Effective October 17th all high ratio buyers will have to qualify at the benchmark rate for all terms.
For example a home buyer currently qualified to purchase with 10% down for a mortgage of $527,000. After October 17th, this home buyer would qualify for a $420,000 mortgage. This equates to a 20% drop in buying power. (All things being equal in terms of property taxes, income, debts, etc.)
Buyers in this situation would have the option to make up the shortfall with more money down or add another person to the mortgage to help qualify or purchase a lower priced property. For detached homes with a suite the use of rental income could help the buyer make up some or all of that difference in qualifying.
Any buyers with an accepted offer in place will have till October 16th to have a firm financing approval in place. Buyers who secure an accepted offer who do not have a firm agreement from their lender (and the respective mortgage insurer) in place by October 16th will be the subject to the rule change October 17th.
Read more here...
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