Mortgage brief… New Liberal govt mortgage rule changes..and what it means.
Yesterday, Federal Minister of Finance, Bill Morneau, announced tighter lending rules. The big focus is on the new ‘stress test’. To sum it up, here’s what’s gonna happen and how it will affect you.
First, let me say this.. IT’S NOT THAT BAD… It will affect those with tighter budgets, but not the vast majority of buyers.
NEW RULE:
-As of October 17, everyone must qualify using the Bank posted 5 year fixed rate. Today, that’s 4.64% (well over the discounted 5 yr, which is averaging around 2.59%..lower with most Brokers).
-borrowing less than 80% of the value of your home allows you to extend your amortization to 30 years…. but not any longer..it now be capped at 25 years.
There were some other changes, but these are the ones that will affect us most. So here’s some other facts the media may not be telling you:
-You remember I said it wasn’t that bad? It’s true. Over 90% of my clients are qualifying already, using the Bank 5 yr posted fixed rates. I suspect that most homebuyers can qualify just as well on October 17, as they can today.
-I’ll repeat…Most homebuyers can qualify easily with a 25 year amortization, but choose to extend that to a 30 year amortization as a fail safe or preventative measure, just in case their incomes are affected in the future … job loss, family illness, child school fees, other financial crisis.
-The govt wants to stop house prices from rising in Toronto, Vancouver and other major urban hotspots. But if you are an investor, earning good income, or have a good down payment, this won’t affect you. Yes, some homebuyers will no longer qualify under traditional lending policies….
-But watch out for the secondary lenders. Secondary lenders AREN’T offering loan shark rates, contrary to what the media might have you believe. They will gain market share as traditional lenders can’t help these borrowers. I’m talking about financial institutions that specialize in that gray market where borrowers don’t quite qualify but can still afford it. They will pay 4% or 5% on their mortgage. (wasn’t that long ago that 4% was a fully discounted AAA rate).
More on this follow.. stay tuned.
Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.
Steve Garganis 416 224 0114 steve@mortgagenow.ca
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As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.
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Question! We have just renewed our mortgage for the second time last December. Will these changes effect folks with existing mortgages that have already been in place for ten years when they go to renew?
Hi Jen,
No.. doesn’t appear so, at the moment.. I say, ‘at the moment’, because a few years back, another uninformed decision almost occurred. The Federal govt had proposed that mortgages get re-qualified at renewal time. Pure madness! Fortunately, after much protest from Mortgage Broker Associations and the Banks, the govt pulled back. We haven’t seen that come up again.
However, anything is possible. The govt seems intent on stopping or reversing all the real estate appreciation.. Let’s hope this doesn’t happen.
The reality of the new qualifying rules is that it won’t affect as many consumers as the media would have you believe. Most consumers are already qualifying using the bank 5 yr posted rate. It’s the PERCEPTION OF THE RULES that worries me. So much confusion.. and that’s when people make mistakes.
You are fine for now Jen. just watch for any potential changes in the coming years. Personally, I don’t think this will ever happen. it’s too much for any bank or govt to administer.
Steve