New Mortgage Rules Oct 19th , 2017

Thursday Oct 19th, 2017

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So I’m sure you have heard the news about some of the upcoming mortgage rule changes that were announced earlier this week.

 
I thought I would put together an email to explain this.
 
What is the Rule Change?
A year ago, the federal government made a rule change that all borrowers who were putting less than 20% down on a purchase had to qualify under this ‘Stress Test'. The rule change just announced was that now all borrowers including those putting 20% down or more, as well as existing borrowers looking to refinance, will need to qualify under this ‘Stress Test’.
 
What is the Stress Test?
When you are looking to qualify for a mortgage, you are essentially qualifying for your mortgage payment. Is your income enough for you to be able to make your monthly payment.  Your monthly payment is determined by your interest rate, your amortization, and your mortgage amount.  Previous to the stress test, we could use the actual mortgage rate (let’s say 3.29%) that you were getting to determine the mortgage payment for application purposes.  Now, with the ‘Stress Test’, we would need to use a mortgage payment that is the greater of the Bank of Canada’s posted rate (currently 4.89%) or the actual rate you would be getting + 2%. So if you were getting a rate of 3.29%, you would need to qualify to carry your mortgage as if the rate was 5.29%.  To clarify further, you have to qualify for the mortgage payment as if your rate was 5.29%, even though you would be receiving a rate of 3.29%.
 
Timeline:
The rule change was announced earlier this week, but as usual, when these changes are announced, there are a lot of unknowns.  The announcement was that the rule change would be implemented January 1st.
 
Unknowns:
Does this mean that you need to close by January 1st?
Does this just mean that you need to have an accepted offer by January 1st, and then your closing can be after this date?
What does this mean for people who bought pre-construction and aren’t closing until later in 2018 or even 2019?
 
Based on the ‘Stress Test’ that was implemented in Oct. 2016 for buyers with less than 20% down, I expect that you will just need to have an accepted offer before January 1st. So this would also grandfather in anyone who bought pre-construction.  Again, this is currently unknown, but we should have more info in the coming days/weeks.
 
 
Example:
 
Let’s say we have a couple making $100,000 a year with no debts, and they have 20% to put down on a purchase. These clients have no debts and good credit.
 
Before January 1st, they would qualify for an $800,000 purchase price.
After January 1st, they would qualify for a $640,000 purchase price.
 
What Does This Mean For You?
If you are looking to refinance, or purchase a property in the near future, you may want to have me run a pre-approval for you to let you know what you would qualify for before January 1st, and what you would qualify for after January 1st.
 
Please call, email, or text me with any questions or concerns. I am always here to help.
Warm regards,

 

Najeeb Sumrani

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