On Monday October 3, 2016 the Department of Finance announced changes to mortgage requirements.  In an effort to curb what they have dubbed an”overheated’ market, largely in Vancouver and Toronto they have announced changes with national implications.  It is still too early to know exactly what all the ramifications will be so I will just stick to the facts.

Foreign Buyers

The government has taken measures to close some tax loopholes.  If you want the details you can find them here on the Department of Finance website. 

Qualification rule changes

To date borrowers have been allowed to qualify on the lower of either the Bank of Canada Mortgage Qualifying Rate (MQR) or the contract rate if the mortgage term was at least 5 years in length.  As of October 16, 2016 all mortgages with less than 20% down will be required to be qualified at the MQR.  As of today that means that a rate of 4.64% will be used to calculate qualification amount instead of a  5 year contract rate closer to 2.50%

What this means is that borrowers will qualify for a little bit less mortgage.  For example, let’s assume a buyer has an income of $50,000.00/year and assuming no other debt payments, 5% down and good credit. Today, using a 5 year fixed rate of 2.44% this client would qualify for a purchase price of approximately $302,000.00. Under the new rules this buyer would now qualify for a purchase price of $ 239,000.00. 

Changes to all Insured Mortgages

Many lenders ‘Back-end Insure’ mortgages with more than 20% down.  As of November 30, 2016, these lenders who use portfolio insurance and other discretionary low loan-to-value ratio mortgage insurance will have to meet the eligibility criteria that previously only applied to high-ratio insured mortgages. New criteria for low-ratio mortgages to be insured will include the following requirements:

• A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
• A maximum amortization length of 25 years;
• A maximum property purchase price below $1,000,000 at the time the loan is approved;
• For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the original amortization schedule;
• A minimum credit score of 600 at the time the loan is approved;
• A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent at the time the loan is approved, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; 
• A property that will be owner-occupied.

Please feel free to give us a call to discuss how this may impact you.