The Finance Minister announced today that starting Oct. 17, borrowers who take out insured mortgages that are fixed-rate loans of five years or longer will be subjected to a more stringent “stress test,”.
These new rules will effect the buying power of new home owners.
Under the new rules, all buyers who have insured mortgages (less than 20% down payment) will have to qualify at the most common rate posted by the Bank of Canada This rate is currently about 2% higher than the discounted mortgage rates offered by most lenders. The rules apply only to new mortgages and not renewals.
So how does this effect you as a first time buyer. With the previous rules you would be able to qualify for a mortgage at the discounted rate that the banks offered. This is currently as low as 2.35% for a 5yr. term. With the new rules you would have to be able to qualify at a rate of 4.35%. If you were making approximately $60,000 a year and had no other debts then this new rule could potentially reduce your purchase price by $30,000 to $40,000 dollars. You can get a better idea by using an affordability calculator such as this one: Mortgage Alliance Affordability Calculator
According the the Minister, the rationale for using the posted rate to qualify buyers is to “…protect Canadians by ensuring sufficient flexibility to support mortgage payments at higher interest rates in the future, for example, when the mortgage term is up for renewal”.