In January 2018, Canada’s new mortgage rules came into effect. These new terms mean that borrowers may be burdened with the need to prove they are capable of paying higher interest rates than those in their lending contract. This stress test will apply to borrowers who have a smaller down payment and those in need of mortgage insurance.
Research by the Bank of Canada showed that about 10 percent of Canadians who were approved for a mortgage without insurance between 2016 and 2017 would not qualify under the new rules. That works out to about 100,000 home buyers, according to media reports.
Changes to Mortgage Applications
So, how will these new rules impact your mortgage application? That depends on your situation. Here are the basic ways that Canada’s new rules could affect commercial mortgage applicants in Ontario.
Those with a downpayment of 20 percent or more may be prevented from buying the home of their dreams if they don’t measure up to the stress test. Lenders will need to use a minimum qualifying rate that is similar to the Bank of Canada’s five-year benchmark rate. Alternatively, they can use their contract rate plus two percentage points. This means would-be homeowners will need to decide if they settle for a less expensive home or to save up a little longer.
If you are looking to renew a mortgage you won’t have to undergo a stress test. However, this means that you will likely be stuck with your current lender and won’t have the opportunity to shop around for a better commercial mortgage rate.
Commercial mortgage clients will also need to meet the stress test. This means that your lender will need to vet your application based on the higher interest rates. If they determine that you are unable to meet the guidelines you will have to settle for a smaller commercial mortgage.
While not every mortgage borrower will be affected by the changing of Canada’s mortgage rules, thousands of homeowner hopefuls will have their dreams impacted. A stress test to see whether applicants are able to pay a higher interest rate than their loan agreement stipulates will now impact who can afford a home or how much they can borrow. These changes will apply to borrowers who have down payments of 20 percent or more as well as those who are looking to refinance their mortgages.
However, this doesn’t mean that these applicants won’t be able to purchase a home. They will just have to decide if they settle for something less expensive or if they save up a bit longer.
For more information about the new mortgage rules in Canada, call Northwood Morgage at 888-495-4825 or contact us here.