New Mortgage Rules in a nutshell: The Who, What, Why and How!
For the video transcript about the new mortgage rules, click on this down arrow.
Who will be affected by these new rules?
Anyone buying a house or condo with less than 20% down WILL be affected. IE: CMHC or Genworth. Buyers with more money down may be unaffected, but please check with lender.
What did they change?
There are several factors in the new rules, but the main one I want to focus on is the new qualification level. Under the old system, buyers would get qualified for the interest rates they can get from a bank or lender.
Under the new rules. Buyers need to qualify for the POSTED rates.
SO while a buyer can get 2.4% from some lenders, they need to qualify for the posted rate This rate is currently around 4.6%
Why did they create these new mortgage rules?
The government is concerned about Canadians over-extending themselves credit-wise. Entry level homes in Toronto and Vancouver might be $600K, and a first time buyer might qualify at the current 2.4% interest rate.
But what if rates go up half a point, or even a whole percent? Those same buyers might be house poor, and could even lose their home if they are unable to make the new payments.
On that note, current rates are at an all-time low. I saw an interest rate chart that went back to 1776 in the U.S., and the average rate historically was around 6%. So it’s not a matter of IF interest rates will rise, it’s a matter of when.
How will this affect home buyers?
For example, if under the old system a buyer would be qualified for a $300,000 home at 2.4%, that same buyer would now only qualify for a $250,000 home.
To put another way, lets assume you were buying a $350,000 home. Under the old system you would need to have an annual income of $60,000. Under the new rules, your annual income would need to be $73,000.