Important changes in the rules regarding mortgage financing effective October 17

On Monday, October 3rd, the Finance Minister of Canada announced a major change to the rules of mortgage financing, which will affect all clients currently in the process of purchasing a new home

Below is an excerpt of the press release published by the Finance Minister of Canada:

“Bring consistency to mortgage insurance rules by standardizing eligibility criteria for high- and low-ratio insured mortgages, including a ‘mortgage rate stress test’ ”.

In order to help ensure the ability of new homeowners to repay their mortgage, even when interest rates start to rise, the rules governing mortgage insurance now require that lenders must, in certain cases, carry out a ‘mortgage rate stress test’ to verify the ability of the borrower to make their mortgage payments at a higher interest rate.

Currently, this requirement only applies to a certain category of insured mortgages, those with a term of less than five years, with a fixed or variable interest rate.

Effective October 17, 2016, this requirement will apply to all insured mortgage loans, including those at a fixed rate with a term of five years or longer.

The owners of a residence who currently have an insured mortgage or who renew their insured mortgage will not be affected by this measure.

Click on the link below to read the complete article:

http://www.fin.gc.ca/n16/data/16-117_1-eng.asp

Effective October 17, 2016, we have to qualify our clients with the Bank of Canada rate, i.e. 4.64% instead of a 5-year “negotiated” rate.

This new measure represents a qualifying rate increase of more than 2%.

Example: $200,000 purchase with a down payment of 5% + the CMHC premium = $196,840 financing.

Qualification with a 2.39% negotiated interest rate and a 5-year term = monthly payments of $871.03

Qualification with the 4.64% posted Bank of Canada rate = monthly payments of $1,104.83.

A difference of $233.80 / month

In keeping with the examples above, unfortunately, with these new measures, we have to revise downwards the purchase price of the new house to $158,000 instead of $200,000 in order to respect the maximum payment possible based on personal income expenses.

As a mortgage broker, I have access to most of the financial institutions with one appointment.

Although the tightening of the rules applies to all financial institutions (including Desjardins), nevertheless, the application of the rules and requirements varies from one institution to another.

To make your life easier, don’t hesitate to contact me so I can help you establish your budget and expertly plan your financial application in anticipation of the purchase of your future property.

I look forward to helping you in making your project a reality.