New Mortgage Rules apply to ALL Buyers

I keep reading news articles about the new mortgage rules that suggest they only apply to buyers who have less than 20% downpayments. (Those are mortgages that are CMHC insured).

I asked Cathy Macdonald, an Ottawa mortgage broker, if this was so, and she says no: the new rules will apply to all insured mortgages. And since many lenders insure their mortages, including those where buyers have more than 20% equity, those buyers will have to meet the higher requirements of financing.

Here’s what Cathy says:

Hi Peggy,

The new rules apply to all ‘insured’ mortgages.  All mortgages with less than 20% down are insured, but many lenders and banks also insure low ratio mortgages with more than 20% down.  These mortgages are often bulk insured at the lender’s cost.  Even though the client doesn’t pay for the insurance, they’re still insured mortgages which means that they fall under the new rules.  Some low ratio mortgages aren’t insured so don’t fall under the new regulations, but in the past, the banks have adopted the new rules for all of their mortgages.   We don’t know yet if banks and lenders will continue under the old guidelines for uninsured low ratio mortgages.

So, if you’re a buyer, you can expect to have to qualify for the higher interest rate set by the five year Bank of Canada rate (currently 4.64%), regardless of the actual (likely much lower) rate your lender may be offering you.

For first time buyers, that could be tough, but it will tough on buyers who are buying high-end properties too, which means it will be harder to sell houses, period. When first time buyers can’t buy, there is usually a domino effect and a slowdown until they build up more equity. What this does, though, is require them to meet the higher test even if they succeed, and have more than 20% as a downpayment, and I think that’s unreasonable.

I have no problem with a higher means test when interest rates are ridiculously low. I do have a problem with the new rules applying to people who have a 20% or higher buffer against possible rate increases down the road.

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