What the new mortgage changes mean to you…

Ottawa has announced new rules in response to concerns that some markets in Canada are overheated and that Canadian debt levels continue to increase. These changes are meant to alleviate risk in Canada’s housing market but may have a significant, especially for first time home buyers.

Here are the changes in a nutshell.

  • “A Mortgage Rate Stress Test” for all insured mortgages. This means that all insured mortgages will now be qualified at the Bank of Canada benchmark rate, currently at 4.64%, instead of the contract rate offered on their commitment. For example, if you have a commitment for 2.49% on a five-year fixed rate, then you would have to qualify at the benchmark rate of 4.64% rather than the commitment rate. This change is scheduled to come into effect on October 17, 2016.
  • “Safer Lending”. This means that mortgages insured through portfolio or bulk insurance must now meet the same criteria as those that are high ratio insured. This change is scheduled to come into effect on November 30, 2016.
  • Closing “loopholes” on taxes. This refers to capital gains exemptions on principal residences that should only apply to residents of Canada.

What this means for you right now

Many people are at various stages of the house buying process. Some may have to put their dreams on hold for awhile. Others, who were qualified for larger amounts, will have to purchase before October 17 or they will have to qualify again.

If you’ve been approved before October 3, you will not be affected and if you bought a home that’s “sold” by October 17, you won’t be affected by these changes.

The broader implications

At the end of the last decade, if your credit score was 620 or higher you could qualify for traditional “A” lending with some lenders going as low as a 580 credit score.  At the time borrowers could qualify on stated income; amortizations could go as high as 40 years and purchasers could borrow with zero down.