What are the Mortgage Industry Changes?
Currently insured mortgages with a term of less than 5 years, and/or a variable rate mortgage had to qualify on the Bank Of Canada (B.O.C) rate. Under the new Department of Finance regulations, all insured mortgages, regardless of term (fixed or variable) will now have to qualify on the B.O.C rate.
Who is affected?
Mortgage Rate Stress Test applies to all insured mortgages, or in other words, mortgages that have less than a minimum of 20% downpayment.
How does this affect a home buyer with less than 20% down payment?
The biggest effect will be on the amount that the home buyer will be able to qualify for. Previously, the five year fixed qualified at the lender contract rate. Now, the home buyer must qualify at the Bank of Canada Rate. Previously, for example, a five year fixed mortgage at 2.39% rate, was qualified at a 2.39% rate, under the new rules a five year fixed rate mortgage at 2.39% must be “stress tested” by qualifying at the B.O.C posted rate (Currently 4.64%) The net result is an approximate 20% reduction in the amount of mortgage money available.
How does this affect a home buyer with a down payment of 20% or more?
There is no significant impact anticipated for home buyers placing 20% or more down. MA has many different options and there are still a variety of solutions for the majority of home buyers.