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The Government of Canada just unveiled new measures in an effort to crack down on risks within the housing market. Areas targeted include speculation by foreign investors and also making it harder for Canadians to get in over their heads with mortgage debt.
Finance Minister Bill Morneau announced a series of changes including stress testing for borrowers who take out insured mortgages (less than 20% down payment) and rules aimed at mortgages with high down payments.
Qualifying at extremely low interest rates have encouraged Canadians to overextend themselves financially which ultimately affects the housing market as a whole. The government has a concern that Canadians on average have a relatively high level of debt and these new measures will help borrowers not take any risks they can’t afford. Especially if the interest rates go up or their overall family income goes down.
Under the new rules as of October 17th, all borrowers who have insured mortgages will have to qualify at the most common rate posted by the Bank of Canada, which is now about 2 percentage points higher than the discounted mortgage rates offered by most lenders. The rules apply only to new mortgages, not renewals, but they are significant given that a majority of homeowners are thought to take out the types of fixed-rate mortgages that will be affected by the stricter qualification requirements.
What does this exactly mean? Well a home that costs $350,000 with a 5% down payment at a 5 year fixed rate of 2.59% would have required an income of $63,000/year but now under the new rules that same home with a 5% down payment qualifying at 4.54% would require a borrower to earn $75,000/year. For higher priced homes the change is more dramatic. a family that earns $100,000 and has a $40,000 down payment could qualify for a mortgage of more than $665,000 under the current rules, but only about $505,000 under the stricter new rules.
If you are wanting to buy a home in Saskatoon and qualifying might be tight for you, contact me and I’ll help you get into a home before the October 17th deadline.
Kari Calder
Saskatoon real estate agent
Century 21 Fusion
Kari@saskatoonrealestate.net
