We are 5 days away for yet another change to our mortgage market.
As of the 17th, it’s getting harder to get the amount of money you may want for your mortgage. Mortgage rules regarding qualification are right around the corner. Rumor has it that 1 in 5 people will be affected.
Here’s how the rules work:
For those wanting a short term fixed rate (1 – 4 years) or a variable rate or a line of credit mortgage, you qualify at the Canadian benchmark rate which is currently 4.64%. You didn’t pay 4.64%, you just qualified at that rate. The thinking is that if you qualify at this higher rate and the interest rate increases, you should still be able to afford the payment because you’ve qualified for less money.
If you took a 5 year fixed rate (or longer), you qualify at the contract rate; a conservative rate would be 2.49%. Because you’re qualifying at this rate, you qualify for more money.
We typically think of high ratio insurance for those putting down less than 20% of the home’s value but in fact most lenders buy insurance for all their mortgages; even for conventional mortgages, but the consumer may not be aware of it because the lenders pay for it.
As of Oct 17th, the Canadian benchmark rate will be used for all mortgage qualifications that are backed by either high ratio insurance or low ratio (bulk pooled) insurance . Here are 3 examples of how it will affect clients.
All based on having little ancillary debt, so using 39% of gross income for your mortgage payment, property taxes and heat
Household income $50,000 gross. Old qualification amount = $299,900
New qualification amount = $239,100
Household income $75,000 gross. Old qualification amount = $466,500
New qualification amount = $372,000
House income $100,000 gross. Old qualification amount = $663,000
New qualification amount = $528,600
In the first example, you will qualify for $60,800 less. In the second example you will qualify for $94,600 less and in the third example you will qualify for $134,400 less.
While lenders try to make sense of the rules, many are not lending for rental properties, nor doing stated income deals at this time.
New changes can create a little confusion, if you have any questions, never hesitate to give me call. I’m always ready to help.