By now, you’ve probably heard about the changes to Canada’s mortgage rules that came into effect on January 1, 2018. Due to the new qualification requirements these changes bring, they will have a significant impact on some people’s ability to afford and buy a home. Because many of Juriscorp’s clients are homebuyers looking for legal services on their mortgage application and negotiations, we would like to share this blog post on the impacts of the new rules.
What Changes have been made to the Mortgage Rules?
Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI) announced in 2017 that it would be making significant changes to the qualifying rates for uninsured mortgages come 2018.
In case you weren’t aware of the exact changes, here’s a summary:
- Starting Jan. 1, 2018, there is now a new minimum qualifying rate, sometimes called a “stress test,” for uninsured mortgages (buyers with a down payment of 20% or more).
- The minimum qualifying rate is now the greater of the Bank of Canada’s five-year benchmark(presently 4.89%) or 200 basis points (2%) above the mortgage holder’s contractual mortgage rate.
- Federally regulated financial institutions “are not expected to re-apply the qualification rate assessment to existing borrowers that are renewing mortgages.”
How will the New Rules Impact Homebuyers?
Not all homebuyers will be affected by the rules. These new rules only apply to homebuyers with uninsured mortgages (meaning those who give a down payment of 20% or more). Homebuyers with less of a down payment were already required to meet this stress test.
But how much will the changes impact those buyers who do have an uninsured mortgage?
Mortgage comparison site Ratehub calculated that the stress test has reduced how much Canadians can afford by about 21%. In an example on their site, Ratehub states that prior to the new rules, a homebuyer with an annual income of $100,000 with a 20% down payment and a five-year five year fixed mortgage rate on 2.83% amortized over 25 years could afford a property worth $726,939.
Now that the new stress test has been implemented, the homebuyer will need to qualify at 4.89% (the Bank of Canada’s current five-year benchmark qualifying rate). That means they can now afford a property worth $570,970.
The bottom line is that many potential homebuyers will not be able to afford as much of a new home. While there isn’t anything that can be done to circumvent this, the good news for homeowners who qualified for a mortgage before January 1 will not have the new qualification rate applied when renewing their mortgage (see point 3 above).
What Should Homebuyers do now that the Changes have been Implemented?
Now that the mortgage rules have changed, it’s more important than ever to consult a lawyer experienced in mortgages and home buying before purchasing a new home.
An experienced law firm, like Juriscorp, can help you understand how the new mortgage rules apply to you and provide you with the best legal advice and services in dealing with the various contracts and negotiations involved in buying a home and getting a mortgage.
We have extensively researched and fully understand all of the impacts of Canada’s new mortgage rules and. You can continue to depend on us to handle your legal real estate needs quickly, accurately, and professionally.
If you require legal services, or have any questions regarding the mortgage rules, please contact us today.