October 17th Mortgage Rule Changes in Canada (one example)
Most of you have heard about the changes coming to the Canadian mortgage underwriting guidelines.
Here is one way the change will affect you if you were in the market to purchase a condo townhome for $339,000
First, we have to assume that you have zero additional debt.
5% down with a 2.39% 5 year fixed rate, down payment is 5% ($16,950), CMHC premium $11,593.80, total financing is $333,643.80
Before October 17th 2016, you need to qualify your mortgage with 2.39% for 5 years. That means you can qualify with a payment of $1476.40/m principal and interest plus $300 condo fees plus $200 heating and electrical plus $208.33 for property taxes. Total payment is $2184.73/m You need to earn $81,927.36 to qualify.
After October 17th 2016, you need to qualify with the current bank posted 5 year rate of 4.64%. That means you need to qualify with a payment of $1872.68. The rest of the numbers are the same but that brings your total monthy qualifying payment to $2581.02. You need to earn $96,788.16 to qualify for the same mortgage on that same home.
You will only be paying 2.39%, but the Federal Finance department wants to ensure that your mortgage is stress tested, in case the rates go up and you need to prepare for a higher payment.
If you have additional debt, like credit lines, credit cards, car payments, student loans, be prepared to either pay them off first or earn a higher income or qualify with an additional income or buy a home in your income range or live with your folks or continue renting.
As interest rates go up, so will the qualifying rate. It seems like it got tougher to buy a home, but if you have been around for a few decades, you will remember inflationary interest rates of 21% for a mortgage. It will take some more planning. If you want to become a home owner, you probably will find a way to qualify.
You need a mortgage professional now more than ever to find your way through the process.
Mike Toporowsky AMP
Real Mortgage Solutions