Canada’s finance minister said the Liberal government is not considering any further actions to tamp down overheated housing markets.
Currently, only insured mortgages with a term of less than five years, and/or a variable rate mortgage, had to qualify on the Bank Of Canada (B.O.C) rate. This requirement will also be extended to low ratio mortgage insured mortgages efective November 30th, 2016. Under the new Department of Finance regulations, all insured mortgages, regardless of the term (fixed or variable) or the loan-to-value will now have to qualify at the B.O.C rate.
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 a lender contract rate 2.39% rate, was qualified at a 2.39% rate. Under the new rules, a five year fixed 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 afect a home buyer with less than 20% down payment? Watch the video explanation below from our trusted mortgage advisor Andrew Thake.
If you'd like help navigating your next home buying or selling experience and have any further questions regarding todays blog post, please don't hesitate to contact us at the email address at the bottom of this page.
Special thanks to Andrew. More info can be found on his Youtube channel: