What These New Mortgage Rules Mean For You

NEW_MORTGAGE_RULES_2018

If you are one of the 37% of Canadians who are not aware of the new mortgage rules, then this article is for you!

On January 1, 2018, the Office of the Superintendent of Financial Institutions (OSFI) made significant changes to the B-20 guidelines that have significant impact on those looking to purchase a home.

These new changes indicate that all uninsured mortgage borrowers (those with down payments of 20% or more) must now qualify against the Bank of Canada’s five-year benchmark rate (currently sitting at 4.99%) or at their contractual mortgage rate + 2% additional. For example, if your contract rate is 3.34% you must qualify at 5.34%. The purpose of this is to ensure that borrowers can service their mortgage debts as interest rates rise (as they are predicted to do so in 2018).

As some of you may recall, similar measure were issued in October of 2016. The stress-testing regulations at the time only applies to those with an uninsured mortgage (those with less than 20% down). These new rules and updates to B-20 essentially mean that ALL mortgages will have to abide by stress testing.

 

To better understand how this will specifically affect buyers, we spoke with Mortgage Expert, Geoff Lee of GLM Mortgage Group and he broke it down for us in the table below*

Picture1*based on a dual income family making a combined annual income of $85,000

As you can see, your borrowing power is drastically changed. You are able to borrow $105,000 less with these new changes, meaning you qualify to purchase a home worth $105,000 LESS than before these new rules were introduced.

However, this is not all bad news for first-time buyers. This can effectively cool a relatively hot market here in the Fraser Valley and Vancouver. It can also limit the competition and allow for more buying options for buyers who are able to put the 20% down and pass the stress test.

This announcement also comes at a time when condo and townhome development is at an all-time high, providing affordable, accessible housing options for many buyers.

Buyers can also look to accommodate these changes by laying out a budget and sticking to it! Re/Max has a great layout for this:

  1. Maintain a financial buffer of at least three to six months, to soften the blow of interest rate increases and unexpected bumps in the road.
  2. The mortgage you qualify for and what you can actually afford are two very different things. Look at your lifestyle, now and in the future, and consider how your mortgage payments and ongoing home costs will impact you. When buying a home, you might have to make some compromises on lifestyle in the interest of homeownership.
  3. Buying a home involves more than just mortgage payments. Ongoing expenses include maintenance, home insurance, property taxes, and utilities.

Entering the market in 2018, or looking to purchase a new home need not be a stressful or worrisome experience. We work with some fantastic brokers who can help you get a sharper rate and we can help you find your next home well within your budget. Give us a call today and let us help you: 604-533-3491.

Advertisements

BC HOME Partnership Program

This new program for first time homebuyers called the HOME Partnership Program may be able to help them! In a nutshell the program breaks down as follows:

  1. Offers qualifying home buyers loans of up to $37,500, interest and payment free, for five years.
  2. The province has started accepting applications, started on January 16, 2017.
  3. To qualify, buyers must:
    1. be buying their first home
    2. obtain a high-ratio, insured first mortgage for at least 80 per cent of the purchase price
    3. have a combined gross household income not exceeding $150,000
    4. have saved a down payment amount at least equal to the loan amount
    5. be a Canadian citizen or permanent resident for at least five years
    6. have lived in BC for at least the full year preceding their application.
  4. The loans will be due in full if the buyer defaults on a payment, ceases to use the home as a principle residence or resells the home.
  5. The Facts:
    1. The loans will match a home buyer’s contribution to a down payment up to five per cent of the home’s purchase price
    2. The maximum purchase price to qualify for a loan is $750,000 (excluding taxes and fees)
    3. After five years, buyers can either repay their loan or enter into monthly payments at current interest rates
    4. Loans through the program are due after 25 years.
  6. The Application:
  7. Applicate/purchaser applies for loan
  8. Expected fees are $560.00
  9. Expected turnaround time is 5 days
  10. Housing Loan Approval is good for six months *** Pre Approval Certificate is required from a Bank before applying for the BC Housing Loan for Down Payment ***
  11. Applicants selects a home and writes offer.
  12. Lender approval and final contract to be sent to BC Housing minimum 14 days prior to closing date
  13. BC Housing will send instructions to lawyer/notary 4 days before closing date
  14. Please allow extra time if your client is applying for the program for subject removals.

For easy reference, please view the PDF Flow chartpower point, and scenario’s.

If you or someone you know has questions about this program, please contact me. I would be delighted to help!