Federal Government announces measures to address housing risks

Mortgage insurance changes coming

As of October 17^th, under the new rules, a stress test that had only applied to borrowers who opted for variable rate mortgages or fixed rate mortgages with terms less than five years will now be used for all home buyers with less than a 20% down payment.

That means borrowers must be able to qualify for their mortgage using a higher interest rate than they will actually be paying on their mortgage.

The advertised “special offer rates” for a five-year fixed rate mortgage is around 2.5%. However, the Bank of Canada posted rate used in the stress test is currently 4.64% . You won’t pay this rate, but it will be the rate used to qualify your mortgage.

What do these changes mean

Borrowers will qualify for a little bit less mortgage.  Let’s take a buyer with an income of $50,000.00/year and no other debt payments, 5% down and good credit. Before the change, on a mortgage with a 5-year fixed rate of 2.44%, this buyer would qualify for a purchase price of approximately $302,000.00. Under the new rules, this buyer would qualify for a purchase price of $239,000.00.

Now more than ever, it pays to talk to an expert.

These changes may make it more difficult for those education members on a lower pay grid who are perhaps first time homebuyers, but remember that the lending specialists at Educators Financial Group are dedicated to helping you make your dream of home ownership come true.  Talk to us about your options today by calling 1.800.263.9541

Stay tuned for more news as more changes are expected soon!

Sources:

http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/house-prices-will-not-rise-forever-base-your-financial-decisions-accordingly/article32219135/

http://mortgagetree.ca/rates-and-government/new-mortgage-rules-announced-monday-oct-3rd-2016/