On Monday, October 3rd, new changes to mortgage regulations were announced by finance minister Bill Morneau. The two biggest changes to the regulations will be to the amortization and to the qualifying rate.
The first of the major changes will be the maximum amortization dropping from 30 years down to 25 years on conventional mortgages. That is... mortgages with 20% or more down payment. On high ratio mortgages (down payment less than 20%), the maximum amortization was already 25 years.
The second of these changes is to the qualifying rate, which requires a bit more explanation. Under current regulation, variable rate mortgages and mortgages with fixed terms shorter than 5 years have to qualify based on whats known as the benchmark rate, which is set by the Bank of Canada. It's basically the average of the 5 year fixed posted rates from the 6 major banks. Currently, this rate is 4.64%.
5 year fixed on the other hand qualify based on your contract rate, which is the rate you are paying. Under current legislation, you would qualify for a much lower amount on variable rates and shorter term mortgages than you would on a 5 year fixed.
The change that was made is that ALL mortgages will now have to qualify based on the benchmark rate, regardless of 5 year fixed or variable. This is going to make qualification much tougher for many homebuyers, particularly in this market.
Just to give you an idea of how big of an impact this will have, on an $80,000 incom, you can qualify for a mortgage of around $525,000 with a 30 year amortization (with 20% down payment) under the existing guidelines. Under the new regulations, this number drops drastically... all the way down to $370,000.
These new regulations take effect on October 17th. Not much notice at all. Anyone with an existing pre-approval will have to get this redone under the new guidelines.
For applications submitted between October 3rd and October 16th, the current regulations can be honoured, providing that the closing of the mortgage occurs prior to March 1st, 2017.
For applications that have been submitted prior to October 2nd, 2016, these new rules will not apply to you and current legislation will be honored.
For anyone who has purchased a home and has not yet had their application submitted to a lender, I highly suggest doing so right away.
_________________ Paul Meredith Mortgage Broker CityCan Financial (est 1976) 416-409-8009 http://www.easy123mortgage.capaulm@citycan.comLic#10532 Follow me on Twitter! http://www.twitter.com/paulmeredith
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