WATCH: New rules proposed by the federal government to curb financial risks associated with the country’s hot housing markets could make it more difficult to secure a mortgage. Mary Griffin explains.
New rules proposed by the federal government to curb financial risks associated with the country’s hot housing markets could make it more difficult to secure a mortgage.
Those changes are meant to cool down markets in cities like Toronto, Victoria, and Vancouver. The new guideline is a stress test for “uninsured” mortgages. That is, loans secured with a down payment of at least 20 percent.
It’s a busy time of year for mortgage broker Kam Brar. New rules on mortgages take effect in just over a month. “I don’t think anyone has to be scared. The sky is not falling by any stretch,” Brar said. “It’s a question of going and seeing your professional, whether your banker, your brokers, whatever. Sitting down. Getting clarity on your situation. And then from that information, making a sound choice as to what to do next.”
Here’s how the new rules will work. A family with an annual income of $100,000 with a 20 per cent down payment, at a five fixed-year mortgage rate of 2.83 per cent amortized over 25 years can afford to buy a home worth approximately $726,939. As of Jan. 1, the mortgage rate of 4.89 per cent would apply. The family qualifies for a mortgage of $570,970. A difference of $155, 969.
Toronto resident Craig Race thought he had time to finish building his new house.
“We’re going to rush to get the house done before the end of the year,” Race said.
Now he’s racing the clock to beat the new mortgage rules deadline.
“We’ll need to replace the construction financing we used to build it with a traditional mortgage, probably in December or January,” Race said. “Right when these rules come into effect.”
While realtors are split on how their clients will be affected, they agree it could slow Victoria’s red-hot market. Ron Neal is with Victoria Re/Max. He said the change is a bit hit for buyers.
“Some people will simply be knocked out of contention. Not be able to go through with plans to move up or get into the housing market that’s suitable for their needs,” Neal said. “However, realtor Tony Joe said many clients are looking to buy, or sell before the new guidelines come into effect Jan. 1. “I think the biggest impact will be for those who are buying at the very top of their affordability level,” Joe said. “Most clients, most of ours anyways, are not doing that. So, they won’t be affected.”
For buyers who don’t meet the new stress test, they can either come up with a larger down payment, or a less expensive home in one of the most expensive regions in the country.