Effective January 2018, Canada will be implementing new mortgage rules which are going to affect all homebuyers in the region.
New Mortgage Rule of 2018
According to the new rules, a buyer is eligible for a mortgage at a rate that is higher of the two either 200 basis points (2%) greater than the mortgage rate they have qualified for or Bank of Canada’s five-year benchmark rate (currently 4.99%).
As per the new rules, home buyers will qualify at a rate that is 2% higher than their negotiated contract rate. This ensures that majority of the homeowners will pay a minimum of 20% down payment besides the sustainable ongoing payments.
These rules confirm that banks are providing loans to individuals who are capable of managing them with an increased rate of interest. This decreases the dependence of banks on loan-to-value calculations in markets where the prices of residential property are showing a rapid rise.
Who will feel the impact of these new rules?
Home-buyers who do not fulfill the criteria for availing bank loans. They will have to avail loans from alternative lenders at probably higher rates of interest.
Home buyers who would be required to meet the bank lending criteria, but now can qualify at an above contract level or 2%.
All those who are looking to refinance their existing homes or looking to purchase a property at 20% down payment.
How will this impact home buyers and sellers?
It is expected that the purchasing power of home buyers will be reduced.
As per the view of economists on this matter, the demand for housing will also see a downward trend.
Negotiating refinancing of an existing home will become difficult. If while renewing, you are with your existing lender then you are exempted from qualifying for these rules. However, if you change your lender during mortgage renewal you will have to verify your eligibility.
The options available for first-time buyers are they can either look to increase their down payment to qualify or add a co-signer who has an income to the loan. If they are not able to fulfill these criteria, they will have to wait a little longer to purchase.
Because of the reduced purchasing power, buyers may opt for economical options such as condos or townhouses instead of detached homes.
If you have been saving up to purchase your dream home in Greater Toronto Area, don’t get disheartened by these complicated rules! Jas will help you realize your dreams! Jas is a leading realtor in GTA who is well experienced in the field. He understands your needs and the rules and regulations impacting the property market. He will advise and suggest suitable properties to you.