New Mortgage Rules

New Mortgage Rules

The Government of Canada is proposing new mortgage rules that will come into effect on Oct 17th 2016. Here is the link to the office announcement: http://www.fin.gc.ca/n16/data/16-117_1-eng.asp

At this point, we can only interpret the final outcome as we are still waiting for lender’s feedback and more details. However, the biggest takeaway is that as of Oct 17th all insured mortgages that use a 5 year fixed rate will no longer qualify using the 5 year discounted rate. To be clear, this proposed rule change is for purchasers with less than 20% down. Purchasers with 20% down will not be effected.

Now this same rule came into place some time ago for Variable rate mortgage and for mortgages with terms of less than 5 years. However, we could still qualify clients mortgage amount with a discounted rate if they chose a 5 year fixed rate.

Let’s use the numbers in an real life example:

Let’s assume your family’s income is $80,000 and you have no debt.

Currently, we calculate your Housing affordability or GDS ratio based on 35% of your gross income. (We can use higher ratios with excellent credit but that is a separate discussion!)

So this allows you to spend $2333 per month for housing. Subtract off $100 for heat and $250 for property taxes and that leaves $1983 for your mortgage payment.

Today, you can qualify for a mortgage of $ 445,500 based on the contracted rate of 2.44%.

As of Oct 17th you will qualify for a mortgage of $354,000 with the posted rate at 4.64%

The difference is $91500.

This may be a good move by the Government of Canada or a bad move. It really all depends on your perspective on housing in Canada.

Please call me with any questions at 403-688-0166.