Canada’s banking regulator, the Office of Superintendent of Financial Institutions, has moved ahead with new mortgage rules including stress-testing to ensure that Canadians are making safe real estate investments. These changes have affected the Toronto real estate market and others across the country.
What Is Changing with Canadian Mortgages?
Since in January 2018, changes to these rules will require home buyers to prove that they could still afford their mortgage payments if interest rates were to rise to the greater of the five-year benchmark rate published by Bank of Canada, or 200 basis points (2%) above than their negotiated mortgage rate. This rule was previously in place for buyers with down payments of less than 20%, but is now being expanded to include uninsured mortgages with larger down payments. Some mortgage lenders were already requiring first-time buyers to undergo similar stress tests, but they will now be mandatory for everyone taking out mortgages.
How These Mortgage Changes Affect You
This change is protecting the consumer and their long-term investments by ensuring that they will still be able to make payments if mortgage rates rise in the future. For the condo buyer, this means that you may now qualify for a smaller mortgage than under previous regulations. In some cases, the homebuyer will be able to buy 20% less house.
Know What You Can Afford
As a buyer, the first step in your journey is to get pre-approved for a mortgage before you start house-hunting. You should know how much you can spend before looking at real estate properties to ensure that you are not aiming to purchase a home that is out of your price range.
MoneySense and RateHub.ca have run the numbers on two example scenarios to determine what these new mortgage rules affect Canadian families.
For example, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 2.83% amortized over 25 years can currently afford a home worth $726,939. Under the new rules, the buyers would need to qualify at 4.89% to account for any future rate increases. At that rate, they can now afford $570,970.
- In the second example, the family’s mortgage rate plus a 2% future increase is greater than the Bank of Canada five-year benchmark of 4.89%. A family with the same annual income and down payment at a five-year fixed mortgage rate of 3.09% amortized over 25 years can currently afford a home worth $706,692. Under the new rules, the buyers would need to qualify at a 5.09% interest rate, meaning they could now afford $559,896.
Whether you are looking at purchasing your first condo or upgrading to another property, don’t hesitate to move forward in the face of these new policy changes. These rules are put in place to protect you and your investment in the long term. Although these changes may mean you qualify for a smaller mortgage, The Condo Store has many housing options in Toronto and the GTA to fit your budget and lifestyle, so get in touch to see how we can help.