On October 3, 2016 Canadian Finance Minister Bill Morneau announced changes to Canadian mortgage laws that are designed to protect borrowers from taking on mortgages they can not afford.
Essentially, the new law requires that all insured mortgages in Canada must undergo a “stress test” that will ensure borrowers can continue making mortgage payments if interest rates increase. This stress test will check if borrowers can continue making mortgage payments if actual rates were to increase to the big bank’s five-year posted mortgage rate, which is currently 4.64%.
In the example provided by CBC.ca a buyer with an annual income of $100,000 and $40,000 down payment could qualify for a mortgage of $665,435 with a mortgage rate of 2.17%. Under the new laws, the buyer would only qualify for $505,762 – 24% less than before.
Even if an applicant can achieve a discount rate on their mortgage, they have to qualify under the stricter rules as if they were borrowing at the Bank of Canada posted rate which is more than twice as high as it is in reality.
So far, there has been a significant reaction to these new mortgage laws Canada-wide. Banks and mortgage insurers have indicated that the new rules will hurt real estate in small markets, with the possibility that borrowers may lean toward lenders that are unregulated.
Barry Magee, a realtor in Vancouver, told REW.ca:
“The mortgage changes are prudent in an overheated market, but let’s not kid ourselves on who was targeted today by the federal government. First-time buyers, Millennials, and those already excluded from the real estate market. I don’t disagree with the changes, but let’s just be realistic about the intended target.”
Alisa Aragon, a broker with Dominion Lending Centres Mountain View, suggested to REW.ca that “[t]his new measure is going to take so many people out of the market, especially in Vancouver with our high home prices.”
These new mortgage laws apply as of October 17 2016. Anyone with a mortgage or has already applied for mortgage insurance is exempt from the new laws.
If you want to learn more about the new mortgage laws and how they might apply to your home purchase in very active Surrey, Langley, or the Lower Mainland real estate markets, contact Natasha Taylor today at 778-316-4290.