On October 3, 2016, the Federal Government announced a few changes to mortgage rules
As of October 17th, if you are putting a down payment of less than 20%, they will give you a “stress test” to make sure that you can qualify for the mortgage based on 5-year Bank of Canada rate. The Bank of Canada rate is currently 4.64% and a competitive rate at one of the major banks would be 2.39%. Based on the new “stress test”, you will only qualify for the mortgage as long as you have a minimum credit score of 600 and if no more than 39% of your household income goes toward your mortgage, heat, or property taxes. The net result could be that you now qualify for 20% less than you would have qualified for in the past.
If you are coming up for a mortgage renewal with the same lender, you should be fine however if you move to a new lender, you would have to requalify under the new rules.
If you have over 20% to put down on a home, the big banks are contemplating more changes after Nov. 30th so stay tuned.
The government has now made it harder for first-time buyers to buy a home. It has reduced their spending power. If a first-time home buyer was once considering a house in the city, their only option, now that the new rules have come into play is a condo, given the price of houses in the city right now. I do believe that this regulation will force more buyers into the condo market. This is great if you own a condo that you’d like to sell. Not so great if you have dreamed of owning a house.
So what do I recommend, if you are or will be a first-time buyer with less than 20% down payment?
Step 1) Go to www.equifax.ca, pull your credit report. Make sure your score is higher than 600.
Step 2) If you’d like to learn more on how to improve your score and make sure your score stays above 600, then listen to my MORRISON REPORT PODCAST with Mortgage Broker, Joe Sammut where we discuss what goes into your credit score and what you can do to improve it. Visit www.morrisontalksrealestate.com and listen.