October 17 2017
The federal government has confirmed a new mortgage stress test that will come into effect on January 1, 2018. The new qualifying rules will apply to home buyers looking for an uninsurable or conventional mortgage. You will need to qualify on either the Bank of Canada benchmark rate (currently at 4.89%, updated weekly) or your mortgage contract rate + 2% - whichever is higher. Currently, buyers in this situation only need to qualify at their contract rate.
As an example, let's say that you've saved $100,000 for a down payment. Today, using a typical rate, you'd be able to buy a $500,000 property if your annual income is $70,000, assuming you have good credit and will take a 30-year amortization on your mortgage. On January 1, you would either need to:
Have an annual income of $90,000 – an increase of $20,000 (better ask for that raise now!); or
Consider property in the $400,000 range – a loss in buying power of $100,000.
Who does this affect?
This rule will affect anyone who is looking for mortgage financing on a property purchase or refinance in Canada with a loan-to-value (LTV) ratio of 80% or less. Whether you are a first time home buyer, buying a second home, or buying a rental property, if you are making a conventional down payment you will need to pass these qualifying rules.
What do you mean by qualify?
A lender will consider your overall level of debt to see whether your income will allow you to take on the additional payment of a mortgage. This debt-service ratio must meet certain levels set by the government in order for the lender to consider your file.
What should I do next?
If you have saved a large down payment and are considering a home purchase in the near future, you may want to accelerate your search to see if you can make an offer before the end of the year. Some local credit unions do not need to follow these rules designed for the Big Banks. Feel free to contact me for more details.