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.

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4 Secrets of Real Estate Investing

The recent boom in BC real estate is getting people excited about real estate investing. Investing in real estate can give you a strong source of income and move you toward financial freedom and the life you have always imagined. Here are 4 key Secrets to buying your first investment property.

  1. Budget—and Stick to It

One of the most important aspects of investing is ensuring you understand your borrowing limitations. Blindly looking at properties before assessing your finances can be a recipe for disaster. Take the time to meet with a qualified mortgage broker to determine how much you can afford to borrow responsibly before you start shopping.

  1. Find the Right Property

Once you have a set budget, you can begin looking for a property. It may be tempting to scour the listings on your own, but working with an experienced local realtor will be a great addition to your team. Working with someone who has first-hand experience in investing will help you find the right property, on budget, in the right area, and provide you a higher return.

  1. Have a Home Inspection Done

Any property you want to purchase should be inspected.  Find a licensed home inspector who will point out any potential problems with the property. This can help you avoid costly repairs down the road. Also, if there are minor updates needed to the home, find a contractor who you can trust can put value back into the property when the time comes to sell or rent it out.

  1. Keep Records of Everything

Keep proper records of income and expenses for your property. Set up a separate, business account so you can easily trace your expenses associated with your real estate investing. This will make tax season and filing a breeze each year.  Along the same lines, if you are buying with a partner ensure you have an agreement in place to protect both of you should things not work out as planned. Have your lawyer draft or review the agreement.

As a bonus tip, it is important to take time to build your “investment team”. Finding people that you can trust and work can make a large impact on your success. To build your network come to our Investors Network Seminar on Tuesday August 15. We are a dedicated group of entrepreneurs who can advise and guide you. You also get monthly training about the real estate market, mortgage changes, and much more!

As always, if you have questions or would like to find the right property, give us a call. Young Real Estate Group is here for you!