NEW CANADIAN MORTGAGE RULES EFFECTIVE OCTOBER 17, 2016
The Minister of Finance announced on Monday new Canadian mortgage rules effective October 17,2016. The new rules will impact high ratio buyers – those with less than 20% down payment. Other rule changes are expected to follow so stay tuned for details as they unfold.
Currently a home buyer with less than 20% (high ratio) requires mortgage insurance through CMHC or one of the private insurers. The financing rules for this purchase differ from those buying a home with 20% or more down payment. However, both types of buyers have one rule in common – to access short term fixed rates (1-4 years) or a variable rate mortgage they must qualify at the benchmark rate (currently 4.64%). They don’t pay that rate, but it is a metric used to qualify for access to the variable or short term rate products.
Effective October 17th all high ratio buyers will have to qualify at the benchmark rate for all terms.
For example a home buyer currently qualified to purchase with 10% down for a mortgage of $527,000. After October 17th, this home buyer would qualify for a $420,000 mortgage. This equates to a 20% drop in buying power. (All things being equal in terms of property taxes, income, debts, etc).
Buyers in this situation would have the option to make up the shortfall with more money down or add another person to the mortgage to help qualify or purchase a lower priced property. For detached homes with a suite the use of rental income could help the buyer make up some or all of that difference in qualifying.
Any buyers with an accepted offer in place will have till October 16th to have a firm financing approval in place. Buyers who secure an accepted offer who do not have a firm agreement from their lender (and the respective mortgage insurer) in place by October 16th will be subject to the rule change October 17th.
This is crucial timing so talk with your realtor and mortgage professional in detail if you are ready to make an offer or have an accepted offer with no current financing in place.
There are no specific deadlines in place by the Minister of Finance regarding pre-sale purchases set to close in 2017. So discuss a strategy with your realtor & mortgage lender if you are a buyer in this situation.
The announcement also indicated a change later this year to mortgages for conventional borrowers with financing that is bulk-insured. This represents a number of banks and other lenders who choose this as a strategy for their portfolio. This could impact all borrowers (those buying or refinancing). We will gain more details on this specific outcome within our industry channels and provide an update as soon as possible.
Note – when watching the news on this subject always remember to do your due diligence and consult with your realtor and/or professional mortgage broker. The media does not always get the details correct and can provide information that can be confusing.
John Caldarella – TRG Downtown Realty at 604-338-2300.
To read the news release http://www.fin.gc.ca/n16/16-117-eng.asp