This just in from Cathy Macdonald, an Ottawa mortgage broker, about the effect of the today’s rule changes on buyers:
Significant Mortgage Qualifying Changes Announced Today
Do you have buyers who are pre-approved and planning to buy at or near the top of their qualifying limit? If so, the mortgage qualifying rule changes announced today by the Finance Department may affect their maximum purchase price
The government announced that all purchasers, effective October 17, 2016, will have to qualify using the Bank of Canada’s 5 year posted rate which is currently at 4.64%. This means that when we are calculating debt ratios, instead of using a mortgage payment based on the actual 5 year mortgage rate of 2.44%, we must now use the payment amount based on a rate of 4.64%. The higher mortgage payment means that the purchaser will qualify for a lower mortgage amount.
For example, with a purchase price of $400,000 and 5% down, at 2.44%, the monthly mortgage payment would be about $1752, but using the qualifying rate of 4.64%, we now need to factor in a payment of $2210 when calculating debt ratios. A client who currently qualifies at 2.44% for a purchase price of up to about $460,000 with 5% down, would qualify for a purchase price of up to about $380,000 under the new qualifying rules.
These rules come into effect in less than 2 weeks, on October 17th, but in order for a purchaser to qualify under the old rules, a purchase agreement would need to be in place and submitted for approval by October 13th, in order to have it in to one of the insurers (CMHC, Genworth, or Canada Guaranty) for approval before the rule change. The purchase agreement must be in place prior to October 13th, and the closing date to qualify under the old rules must be by March 1st, 2017.
If a purchaser isn’t buying at the top of their qualifying limit, the rules may not affect them, but this will be a significant change for many home buyers.
Cathy Macdonald, Mortgage Brokers Ottawa
Apply Online: www.cathymacdonald.com
300-1701 Woodward Drive