Hey everyone! Last week the federal government announced new mortgage financing rules that come into effect in just a few days, on October 17th 2016. The goal of these new rules is “to ensure a healthy, competitive and stable housing market for all Canadians,” but the fact remains that measures this drastic will have widespread effects – some of them not so good. The point of this post is to bring you up to speed with how these changes will affect you, whether you’re a long-time homeowner, just starting out, or in the market for a better mortgage.
The gist of the new financing rules is this: your purchasing power as a consumer is going to decrease. Stricter lending policies mean that the mortgage you can today is going to be better than the mortgage you can get next week – take this simple example from ratehub.ca:
A family with $100,000 of income that saved up $40,000 for a down payment can afford a $665,000 home today. After Oct. 17, when the new stress test rules kick in, that same family can only afford a $505,000 home. That’s a difference of $160,000, representing a 24% drop in affordability.
That’s pretty drastic, and it’s not the only change. There are three main points to the new financing rules, the most important of which is that from now on, all insured borrowers will be subject to a “mortgage rate stress test.” This means that your ability to pay off an insured mortgage will be based on the Bank of Canada’s posted five-year fixed rate, which is currently at 4.64% – substantially higher than the rates you can get through a mortgage broker like myself. In brief, the mortgage you’ll be able to get going forward will be significantly less than the mortgage you can theoretically afford. Note that if you have or are planning to renew an existing insured mortgage, these changes thankfully won’t affect you.
The two other points will be less noticeable to the average Canadian, but are equally important. To sum them up, the rules regarding “the exemption from capital gains tax on the sale of a principal residence” are being tightened, and “the Government will launch a consultation process… [on] a potential policy option that would require mortgage lenders to manage a portion of loan losses on insured mortgages that default.” Both these policies will have direct and indirect effects on the types of mortgages lenders will be willing to offer in the future.
“Canada’s housing agency says it’s too early to tell what impact the incoming rules are having on home-buying decisions” (via bnn.ca). That may be true, but as a seasoned mortgage broker I can promise you that an impact is already underway. If you’re at all worried about the new changes, or you want a more personalized rundown of how they’ll affect you and your unique situation, then I urge you to give me a call at (250) 782-9665. My phone is always on, and I can help you figure out your best options. Regardless of whether or not you’re happy with the new regulations, your perfect mortgage is still out there – and I want to get it for you.
In the meantime, here’s a simple chart you can use to figure out what you might expect come October 17th:
See you on the other side!
Lori Lalonde, Your Northern BC Mortgage Broker