As of January 1, 2018, mortgages in Canada need to meet new requirements. If you’re in the market, either as a buyer or a seller, it’s important to understand what these rules mean for you.
Since January 2017, borrowers with small down payments (20 per cent or less) have had to face a stress test before qualifying for a mortgage. Under the new rules, even borrowers who plan to put down more than 20 per cent will face this stress test. This might not seem like a big deal, but around 10 per cent of Canadians who were issued an uninsured mortgage under the old rules would not qualify for a mortgage under these new standards.
If you plan to place a down payment of 20 per cent or more on your mortgage, banks will be required to check your application based on a minimum qualifying rate equal to or greater than the Bank of Canada’s five-year benchmark rate. This means homebuyers will likely either need to look for cheaper homes or save up enough money to put a greater amount of cash down on their mortgage. On average, purchasers will need to reduce their target price by 6.8 per cent.
These rules will also impact everyone who is planning to refinance a previously existing mortgage. To qualify, you will need to meet the requirements put in place by these tougher stress tests. If you are already close to your borrowing limit, you may need to opt for a cheaper loan.
To make the adjustment easier, financial regulators have built in some terms that make sure the new rules do not get in the way of transactions that are currently in progress. For example, if you have already signed a purchase agreement on a new home, but have not yet secured a mortgage, you will not be subjected to the tougher stress test. The new rules will also have minimal to no impact on borrowers who have a lot of financial capacity.
Do you have questions about the new mortgage requirements in Canada? Are you ready to apply for a mortgage? Contact us today to see what we can do for you.
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Rasha Ingratta & Mortgage Associates
By Mortgage Intelligence
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