We asked our BMO Mortgage Specialist to weigh in on the new mortgage rules coming into place January 1, 2018, and what they will mean to you as a Buyer! It will be important that if you will be looking to secure a home now or in a few months, to ensure you get an approval done to leverage your buying power.
Interested in a home at Fish Creek Exchange? Kanchan offers our purchasers a rate hold that will secure your approval today, while you wait for your new home to be completed. Don't wait, contact our team to discuss the opportunities we have available.
As many of you are aware, the Government is making Additional changes in the mortgage industry. As of January 1, 2018, lenders must use a “Stress Test” to qualify ALL mortgages going forward, not just high ratio mortgages (less than 20% down).
Current Rules:
1) As a Home Buyer, if you have less than 20% to put down on a home, you have to qualify at the “5 Year Bench Mark Rate" (currently 4.99%). You will still receive a discounted rate, but your debt ratios MUST be within standard mortgage lending guidelines when the higher rate is used (Max 39% Gross Debt Service & 44% Total Debt Service).
2) As a Home Buyer, if you have 20% or more to put down on a home, you get to qualify at the discounted rate when you take a 5 year fixed term or longer.
New Rules:
1) The Home Buyers with less than 20%, your rules won't change.
2) As a Home Buyer with 20% or more to put down, the rules change BIG time. You will now have to qualify at the Bench Mark Rate OR the Discounted Rate + 2% ~ whichever is higher. This means, for example, that you will have to qualify under the 'stress test' number of 5.39% (assuming a 5 year discounted rate of 3.39%).
When looking at the impact of the stress test rule on a family earning $100,000 putting down a 20% down payment on a 3.39% five-year fixed rate amortized over 25 year. Under the current rules, that family could qualify for a house worth $600,000 (including estimated tax & heating costs), but after the new rules take effect on Jan 1st 2018, that family would only qualify for a house worth $480,000 based on a 5.39% stress test.
There is still a LOT of discussion on this matter and we hope to see some amendments to the proposed changes, but I believe we must all hope for the best but prepare for the worst!
If you are thinking of buying a home OR refinancing your existing property ~ NOW is the time to review your options! As you can see from the example above ~ this change has a very Significant Impact on your ability to qualify for a higher mortgage approval. While the country’s banking regulator has set January 1, 2018 as the date for new stress tests to take effect, the expectation is that many federally regulated lenders will usher in the changes before then.
Please call or email me anytime to discuss your mortgage needs and I will be happy to assist!
Kanchan Bhatia - BMO Mortgage Specialist
(C) 403-714-8995
(E) kanchan.bhatia@bmo.com