October 17th was the day that new mortgage rules came into effect in Canada. Yes, good mortgage rates are still possible, but under the new rules, all insured mortgages must undergo a “stress test” from the lender. What that means is that you could possibly get a 5-year mortgage at 2.69% interest, but you have to qualify for a mortgage at The Bank Of Canada posted rate(which is 4.64% at the time of this post). Even though you would still get the rate of 2.69%, the buying power will be lowered by the need to qualify at the higher rate.
This affects people looking for a new mortgage. This example was used by The Alberta Real Estate Association. Let’s call them The Johnson family. They previously qualified for a mortgage at 2.49% interest and qualified for a $450,000 mortgage. After October 17th, that same family would qualify for a mortgage of only $360,000(given the need to qualify at The Bank Of Canada rate of 4.64%). As you can see, these changes are significant!
Not only does it affect people looking for a new mortgage, it will also affect people renewing their mortgage in the future. Let’s say you have an existing 5-year mortgage at 2.69% interest. After the 5 year term is up, you will have to be able to qualify for the Bank Of Canada posted rate(which is currently 4.64%). Has a homeowner built enough equity in the home in 5 years to help cover the difference to secure a new mortgage?
It’s going to be very interesting over the next few years to see how this will affect new mortgages, and looking at the bigger picture…the entire business of real estate in Canada.
If you have concerns about your mortgage situation now or what you could be heading towards…please talk to a mortgage professional and get your questions answered. Whether you’re getting pre-approved for a new mortgage or your re-writing your current mortgage, talk to a professional that can give you the best options available. If you don’t know any mortgage people…contact me, I’d be more than happy to get you in touch with some of the very best!