UPDATED! Explaining Canada's new mortgage rules

UPDATE: It was recently brought to our attention that lenders have received a grace period on this change. They now must have this implemented by the end of November. Most lenders are choosing to do so, and this is a great opportunity for buyers with less than a 20% deposit. If this effects you as a buyer, you need to have your mortgage application in to your lender before the changeover if you want to be approved under the old system. Your house does not have to be sold by the end of November, you just need to have your application submitted. This will substantially effect the amount you can borrow. If you have any questions, Tracey and I would be happy to answer them. Please feel free to contact either of us. This is good news, even if it only has a small window, for many buyers. Please don't miss this opportunity! 

New mortgage rules came into effect on October 17th and many buyers are wondering how exactly this effects them. These changes effect anyone buying a home with less than a 20% downpayment. Before the change, you only needed to qualify at your lenders posted rate, around 2.39%. In an effort to slow a hot market in a few key cities, as well as insure that buyers will still be able to afford their house payment in the case of a future interest rate hike, these buyers must now qualify at the higher Bank of Canada benchmark rate, around 4.64%.

How the math works:
The average home price in Woodstock is around $280,000, so we will use that as a benchmark. If you were applying for a 25 year mortgage, paid monthly with a 5 year amortization,  and you had saved a 5% downpayment of $14,000, your payment would be $1,239.02 at 2.39%. That is what your would be paying monthly, but under the new rules you need to qualify at the higher rate of 4.64%. And that same mortgage at 4.64% has a monthly payment of $1,571.59. That is a difference of $332.57 you must qualify for to be approved for the $280,000 mortgage, even though you will only be paying $1,239.02 per month.

If, under the old system, $280,000 had been the most the bank could approve you for, your new approval would be around $221,000. That is a difference of $59,000. Genworth, one of two companies that supply mortgage insurance in Canada, has estimated that this will leave 1/3 of new home buyers unable to purchase a home under the new rules. Fortunately, Oxford County is located in an area where great homes can still be purchased in an affordable budget. Areas like Toronto and Vancouver will be taking the brunt of the loss of first time buyers. Tracey and I would be happy to sit down and explain this to anyone with questions, or would like to see what options are available in today's home market. As always, the first best step in buying a home is to get a pre-approval from your lender. If you aren't sure who to see, we would be happy to recommend someone we know will do a great job for you!