New Mortgage Rules: For Better or For Worse?


Given the recent introductions of new rules proposed by the government — I am compelled to write a post on how these changes are going to affect any homebuyers, especially those who have worked hard to save their hard-earned money, or current home equity, for a 20% down payment.

For those who are getting up to speed: the Canadian government has proposed new ‘stress test’ rules to those individuals purchasing a home with 20% down or more. Buyers will have to qualify at the Benchmark Rate (set out by the government — currently 4.89%) or the contract rate (set by the lender — the mortgage rate you would pay) plus 2.00%, whichever is higher. Currently, a decent mortgage rate with a 20% down payment is around 3.44% — That means, with the proposed stress test, these buyers would have to qualify at a rate of 5.44% if the rules were put in place today.

The results of these proposed changes will move even more potential buyers away from purchasing a home of their own or significantly reduce the purchase price they can afford.

Here is an example. Currently an individual, or couple, with a combined annual income of $88,000 could afford to purchase a $501,000 home with a $100,000 down payment, at a rate of 3.44% assuming they have minimal non-mortgage debts. With the proposed stress test changes, the same individual or couple would have to qualify at a rate of 5.44%, thus reducing the purchase price of the home they can afford to $411,000. That’s a 22% decrease in purchase price even though they have a 20% down payment towards the purchase of their home!

In my opinion, the government is changing the mortgage industry too quickly. The above example is only a couple of the explained factors that will change come January 1st, 2018 (or sooner). There needs to be more time in-between government changes and regulations to properly assess how the changes are truly impacting the Canadian housing market and trends. Changing the rules on mortgage approvals (October 2016) and then having a large, nation-wide (for the most part), housing boom doesn’t work for tracking the appropriate results.

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Originally published at spencermurraymortgages.quora.com.

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