What Are the New Canadian Mortgage Rules?
Sweeping new mortgage requirements were introduced in Canada by the federal government on Monday, October 17. While the tighter mortgage rules in Canada are designed to cool the housing markets in Toronto and Vancouver, they could also make it difficult for first-time home buyers everywhere else in the country to qualify for a loan.
First, the government closed a loophole for non-residents. Before the new mortgage rules kicked in, non-residents could claim a capital gains exemption for selling a principal residence if they were not a resident in Canada in the year they acquired the property. This will impact those who try to flip houses and not pay the capital gains tax.
Under the new mortgage rules, the government also restricts insurance on mortgage loans with a maximum amortization period of 25 years and homes with a purchase price of less than $1.0 million, As well, borrowers must have a minimum credit score of 600.
Before the new, stricter lending rules kicked in, buyers with a down payment of at least five percent of the purchase price but less than 20% needed to pass a stress test to ensure they could afford to cover their mortgage payments when interest rates rise.
As a result of Canada’s changing mortgage rules , everyone now has to qualify for a loan based on the five-year posted mortgage rate. The difference between the posted and contract rates is often two percentage points higher for mortgages with terms of five years or more.
Even though a potential home buyer in Toronto could get a mortgage approved at 2.5% from a lender, they now have to qualify at the Bank of Canada’s posted rate of 4.64%. If they can’t pass the stress test, they’ll be turned down for a mortgage, even though they don’t actually have to pay the extra money.
This means many first-time home buyers in Toronto will not be able to qualify for an insured mortgage , which requires total carrying costs of the home (mortgage, insurance, property taxes, and heating costs) to not exceed more than 39% of the family’s gross income. Instead, many first-time home buyers in Ontario and elsewhere will qualify for smaller loans.
How will first-time home buyers with less than a 20% down payment be impacted by the new mortgage rules? A buyer who was once eligible for a $300,000 mortgage on a five-year fixed rate, with five percent down, will now only qualify for a $237,000 mortgage.
Under the old mortgage rules, a first-time home buyer with a family income of $80,000 could have qualified for a mortgage of $400,000. Under the new mortgage rules, the same buyers would be approved for a mortgage of $320,000.
What this means is first-time homebuyers will need to consider either increasing the size of their down payment or lowering their expectations.
What Are the Effects of the New Rules on Existing Mortgages?
The stricter lending rules will not just impact first-time home buyers. Those looking to sell their properties will also be affected by the new mortgage rules in Ontario in 2016 . In fact, the impact of new mortgage rules means what used to be a seller’s market in Toronto and Vancouver is going to become a buyer’s market. But it’s going to come with a lot of restrictions.
Those who currently own homes in Toronto and other major urban centres may be negatively impacted by the changing mortgage rules, especially if they are refinancing or selling, as they may lose some of the equity built up in their home. That’s because their home’s value is based on the buyer’s affordability; less affordability could result in a decrease in their home’s value/equity.
Whether you’re a buyer or seller, the new mortgage rules will have an impact on your future. Ultimately, you need to make sure you are informed on all of the changes to the mortgage rules and regulations before purchasing, selling, or refinancing.
Non-Traditional Lenders Not Affected by New Mortgage Rules
Canada’s new tighter lending rules only impact those who turn to Canada’s big banks. Canada’s non-traditional lenders are not bound by the new mortgage rules. And a growing number of Canadians are turning to mortgage brokers. In fact, more than 10% of all mortgages originate from non-traditional lenders.
In addition to helping Canadians who do not qualify under the new mortgage rules, non-traditional lenders can also help those who are self-employed , have bruised credit, or have unreliable income to secure a mortgage.
Canadalend.com, Helping First-Time Home Buyers Secure a Mortgage
Ottawa has just made it a lot more difficult for first-time home buyers to qualify for a mortgage. They have also made it difficult for those who are self-employed, are single-income earners, have bad credit, or have unstable income to qualify for a mortgage.
Fortunately, you don’t have to use one of Canada’s big banks to secure a mortgage. As Canada’s leading low-cost, private mortgage solution provider , the independent, licensed agents at Canadalend.com can help you overcome the new stricter mortgage rules.
Not only that, they’ll help you find a mortgage best-suited to your long-term financial and lifestyle needs. How does Canadalend.com do it? While the big banks only offer their own financial products, Canadalend.com has access to hundreds of different lenders.
If you’re interested in seeing what kind of mortgage you qualify for, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.
1. Isfeld, G. “New mortgage rules will ‘reduce the risk’ a housing crash poses to Canada’s economy,” Financial Post web site, October 3, 2016; http://business.financialpost.com/personal-finance/mortgages-real-estate/new-mortgage-rules-will-reduce-the-risk-a-housing-crash-would-pose-to-canadas-economy.