What you should know about the new mortgage rules

(November 14, 2016 )

NEW MORTGAGE RULES – STRESS TEST:What you should know about the new mortgage rules.On October 3rd, Finance Minister Bill Morneau announced new mortgage rules in an effort to ensure that Canadians don’t over stretch their budgets.   

Here’s how they work: 

High Ratio Deals (less than 20% down payment): Up to Oct 17th, if you chose a fixed mortgage term of 4 years or shorter or a variable rate, you had to qualify at  the Bank of Canada qualifying rate (currently 4.64%), however if you chose a 5 year fixed term you could qualify AT the discounted or contract rate.  For many, taking a 5 year term allowing them to qualify at the lower rate, made buying possible.  
The new rules as of Oct 17th, 2016, require borrowers to qualify at the BQR (Bank Qualify Rate) of 4.64% on ANY term, even the 5 year or longer terms.  To be clear, the client still gets the low current 5 year rate, but their budget will be reduced by approx. 20% due to the higher qualifying rate imposed.  

Why was this new rule created?  They refer to this as a “Stress Test” to ensure buyers can afford their mortgages should rates be higher at time of renewal.  Conventional Deals (20% down payment or greater):

What's changed? Effective November 30th, any mortgage loans that lenders back end insure must now follow the same criteria applicable to “high ratio” mortgages, including the new qualifying stress test. This means that rental properties, properties over $1 million, and mortgages with an amortization greater than 25 years will no longer be eligible for portfolio insurance. 

Does this mean I will have trouble getting a mortgage? No. The change will only affect some lenders that back end insure these types of mortgages. I have access to multiple lenders, so I would place the mortgage with the appropriate lender for your unique situation. 

Written by our go-to mortgage broker, Derek Christiansen.