MORTGAGE RULES... GOOD, BAD OR UGLY?
As January 1st, 2018 quickly approaches a lot of talk happening in the real estate world right now is circling around the new mortgage rules. What are the new mortgage rules? Who will be effected by the new rules? What will it mean for the future of the Toronto Real Estate Market?
In the past, a by-law stated that, borrowers with a down payment of under 20 percent for a home must purchase mortgage insurance. Borrowers were required to pay an insurance premium, but the beneficiary is actually the lender, because the insurance protects the loan giver in the event the borrower defaults on the loan. Anyone who puts down more than 20 per cent of the value of a home doesn’t have to pay such insurance, and is known as an ‘uninsured’ borrower. These people will be most effected by the new rules.
The rules now require the minimum qualifying rate for uninsured mortgages to be the greater of
the five-year benchmark rate published by the Bank of Canada (presently 4.89%) or 200 basis
points above the mortgage holder’s contractual mortgage rate. The main effect will be felt by
first-time home buyers because now, no matter how much money they put down as a down
payment they will be required to pass a street test. The effect of the changes will be huge,
resulting in a 20% decrease in affordability, meaning a first-time homebuyer will be able to buy
20% less house.
Ratehub.ca printed some examples of how this would effect certain households;
In this case, the family’s mortgage rate, plus 200 basis points, is greater than the Bank of
Canada five-year benchmark of 4.89%.
According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of
$100,000 with a 20% down payment at a five-year fixed mortgage rate of 3.09% amortized over 25 years can currently afford a home worth $706,692.
Under new rules, they need to qualify at 5.09%
They can now afford $559,896
A difference of $146,796 (less 20.77%)
The stress test itself consists of ensuring the borrower would be able to pay the loan if interest
rates become higher than they are today.
Here is a chart that shows some examples.
Notably, the new stress test rules won't apply to mortgage renewals as long as they are with the
borrowers existing lender. If a first-time homebuyer doesn’t pass the new stress test, they have three options; They can either put down more money on their down payment to pass the stress test, they can decide not to purchase the home, or they can add a co-signer onto the loan that has income as well. So if you’re a first-time homebuyer, it may mean renting a little longer and waiting for your income to go up before you’re able to buy your first home. Alternatively, some first-time buyers will buy less—maybe a condo instead of a pricier detached home. Or, the new buyers may opt to get a co-signer to qualify under the new rules.
Whatever you decided to do, Envision Realty Inc. believes knowledge is power. We are always committed to our clients and ensure that everyone is given as much information as possible, which is why we work with top professionals in the business to ensure everyone involved feels comfortable with their decisions and options.
Envision Realty has partners with David Francella who is a top mortgage specialist with Royal Bank Of Canada. He has customer service, commitment and dedication that aligns with our own values at Envision Realty Inc. and feels it is important to make sure you get the home you really want, with flexible financing solutions that are right for you. David is passionate about helping get the right mortgage you need to suit your lifestyle and to make your home ownership goals happen. Supported by the considerable resources and expertise of RBC Royal Bank ® , He will provide you expert advice and service for your home financing needs. He can help you understand the economic environment and ensure your financing suits your current situation and your future plans. You’ll enjoy the confidence of knowing you are working with a professional who has only your best interests in mind.
If you are looking to make informed mortgage decisions,
contact David today and he will be in touch with you within 24 hours.
For more information you can also visit RBC website.