Back in October of this year, Canada’s Federal Government made a few notable changes to the mortgage lending rules. These changes will affect any one looking to purchase Homes for Sale in Owen Sound or any where in Canada, but it will have the greatest impact on first time homes buyers. Effective as of October 17th, the new mortgage rules will potentially lower the mortgage size many buyers will qualify for. Under the new rules, buyers must under go a stress test that had previously only applied to applicants opting for a variable rate mortgage, or a fixed rate mortgage with a term of less than five years. The stress test will now be used on all homebuyers applying for a mortgage with a down payment of 20% or less. In other words, applicants must be able to qualify for a mortgage with an interest rate that is higher than what they will actually be paying for their mortgage. Currently, the big banks in Canada are offering a five year fixed mortgage rate of approximately 2.5%. However, the rate used in the stress test, as posted by the Bank Of Canada, is to 4.64%, based on the rates used by the big banks.
The idea behind the new rules is to protect potential homebuyers in the event that mortgage interest rates were to increase dramatically. Applicants must prove that they would still be able to make their mortgage payments, as well as the associated costs to home ownership. Mortgage broker Frank Napolitano has explained the new rules with a simple and clear example.
Napolitano’s example was a Canadian earning approximate $70K a year, with a nest egg large enough to accommodate a 5% down payment, while carrying non-mortgage monthly debt payments of $500 for a school loan or car payment. Using a five year fixed-rate mortgage of 2.44%, most applicants would qualify, under the old rules, for a loan on a home valued at approximately $370K. Using the new stress test percentage of 4.64%, we see that the same applicant would only be eligible for a loan to buy a home valued at approximately $280K. This gap of nearly $100K means that many individuals who were able to purchase a home using a mortgage secured under the old rules would not have qualified for their same mortgage with the new rules. Canadians looking to purchase a new home will find that they may have to settle for a less expensive home, save up a larger down payment, or wait until their income has increased.
Purchasing Owen Sound Homes For Sale With The New Mortgage Rules
The new stress test rules are there to prevent as many Canadians as possible from entering into debt they cannot afford to pay back should the markets change. A pre-approved mortgage can help you determine where you should start your search for your next home.