|New Phase Affordability
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|Author:||mazaruni [ Mon Feb 12, 2018 9:53 am ]|
|Post subject:||New Phase Affordability|
I contacted my financial adviser because we wanted to sell our townhouse and buy a new home at 16 mile creek. This was the response I got. I am thankful for the advice. My friends purchase at the Preserve for $1.6mil. They are newly weds in the 20s with a town home. I am sure this would have been helpful to them that's why am sharing it.
I apologize for not being able to get back to you yesterday; I had a bunch of files closing and also had to leave early for a family function. It was a busy day!
I do not have good news for you...
With the new mortgage stress test that the Federal Government imposed on Canadians on January 1st, you will no longer qualify for a mortgage for a house purchase price in this range you're considering.
Your RMG mortgage is portable, however, you do still have to re-apply for the mortgage when you are ready to move to the new home. The application is underwritten as a new mortgage, with income and all the other usual criteria checked, and you'll have to qualify at the rules in effect at that time.
I'm not sure how much you know about the new mortgage stress test; We now have to qualify the borrower at the greater of two rates: for fixed-rate mortgages, the Bank of Canada benchmark rate (currently 5.14%), or the new mortgage contract rate + 2%; and for variable rate mortgages, the Bank of Canada benchmark rate.
The 5 year fixed rates are currently priced at about 3.60% for conventional-type applications like yours, so this means I'd have to qualify you at 5.60% - and you will not qualify for this rate on your income alone.
I am not comfortable encouraging you to proceed with the new-home purchase plan for a couple reasons - the biggest reason is that there is too much uncertainty with respect to the chance that the Government will continue to impose further restrictions on borrowing. If, when the home is ready to close, you don't qualify with RMG or any other institutional lender, then we will have to look at a subprime-type mortgage - which means a much higher interest rate than what you are currently paying. For example, subprime mortgage pricing today for borrowers who no longer qualify under the new stress-test rules is about 4.89%. That's a big difference compared to what you are currently paying!
Another reason why I'd hesitate to recommend this purchase is that there is much uncertainty with respect to home prices, while we wait for the fallout of the stress-test to hit real estate prices.
A perfect example of this is the issue that Mattamy is experiencing at another project they are building in Whitby (I think it's Whitby, or some other east-GTA area). The builder has priced its second phase 90K less than the first phase homes were sold for. Those Phase 1 homes have not even closed yet, and they have dropped in value. That is a very real risk that you need to be aware of.
If you have the extra cash available to make up any shortfall in house value, then it won't matter as much, but if you are dependent on getting a mortgage for a substantial chunk of the purchase price, then it is a very risky investment.
If you want to move to a larger home, then I'd recommend you look at the resale market, not new construction. But, even for resale, you will not qualify due to the new stress test underwriting rules. We'd need more income on the application, in addition to what you earn.
My advice is to just stay where you are, and hammer away at your mortgage - by increasing the payment, or bulk up your savings. If rates continue to increase, you'll be somewhat insulated from that payment increase shock.
I'm sorry I'm trying to talk you out of this - The timing just is not right!
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