New mortgage rules might make buying in Canada more difficult

MoneyThere are new guidelines for banks that came into effect at the beginning of November. These are designed to avert a property bubble by forcing lenders to apply stricter rules when qualifying buyers.

  1. If you are planning on putting down less than 20% on the purchase of your new home then you are a getting a high ratio mortgage. On high ratio mortgages where a variable rate mortgage or a fixed rate mortgage of less than 5 years is chosen then the qualifying rate will be the Benchmark rate (set by the Bank of Canada and currently at 5.24%). In essence then, the client is having to qualify at a much higher rate than the one which they will be getting thus making qualification that much more difficult.
  2. If you were looking to get a mortgage of over $1m then you have to put down 20% of the purchase price. Keith Baker described this as “a game-changer for clients who, previously, could have qualified for a high ratio mortgage (based on income) where the mortgage amount exceeded $1,000,000”.
  3. High ratio mortgages must be amortized at no more than 25 years. Conventional mortgages can be amortized over 30 years.
  4. Where Lines of Credit are offered together with a mortgage component (HELOC) the Line of Credit portion may not exceed 65% of the value of the property.
  5. There are stricter guidelines for calculating the borrower’s minimum monthly payments on unsecured debt with the resultant effect making it more difficult to qualify.
  6. The elimination of cash-back down payment mortgages.
  7. Stricter proof of income for self-employed clients.

These new stricter guidelines mean that it is important to seek advice from a mortgage professional so that you can plan your home purchase in Canada. Our broker, Keith Baker, can be contacted here.

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