November Community Update
Happy November, everyone!
I hope everyone enjoyed a relatively warm October. For those of you following along in the news, you’ll know a lot more than just weather has changed over the past month. In early October, Finance Minister Bill Morneau rolled out a series of changes to Canada’s mortgage rules, which aim to protect home buyers against mortgage stress while cooling the housing market. The four major changes, which began implementation on October 17, will also address issues concerning foreign buyers who buy and flip homes in the Canadian market.
Since the government’s plan aims to prevent a surge in home prices in large cities like Toronto and Vancouver, the home buying process will become a little more difficult for some buyers.
As of mid-October, high-ratio mortgage stress tests are now being applied to all new insured mortgages in order to be approved. This is to ensure the buyer will be able to afford his/her mortgage should interest rates rise in the future.
Let’s break it down a little bit more.
Past mortgage rules
In the past, buyers who put down anywhere between 5 per cent and 20 per cent of the purchase price must be backed by mortgage insurance. These loans are called “high ratio” mortgages and are set up to protect the lender in case the home buyer defaults.
However, if the buyer has 20 per cent or more for the home’s down payment, the lender could put a “low ratio” mortgage in place, which covers 100 per cent of the loan should a default take place.
The changes (beginning October 17)
Mortgage rate stress tests are now being expanded to cover all insured mortgages, of both high and low ratio. This means even buyers with more than a 20 per cent down payment will be affected. The stress tests are to ensure the buyers can still afford their mortgages if interest rates were to spike.
In order for a home buyer to be approved now, he/she must first qualify for the loan outlined the contract at the negotiated rate, as well as at the five-year fixed posted mortgage rate set by the Bank of Canada. This rate is much higher than the average rates home buyers could typically negotiate.
In addition, home buyers cannot be spending more than 39 per cent of their income on home-carrying costs. Total debt must also not exceed 44 per cent of the home buyer’s income.
While it might be more difficult for some buyers to qualify, this measure is to help avoid mortgages so large that they might stretch the buyers too thin if interest rates were to rise.
Another change is set to take place on November 30th. Visit my blog regularly to keep yourself up to date.
Congratulations to our October contest winner, Laura Favaro! She won a $25 Starbucks giftcard. If you’ve been dreading the cooler weather, this month’s giveaway is the pick-me-up you’ve been waiting for. I’ve teamed up with local culinary whizz and owner of Boland’s Open Kitchen, Christopher Boland, to give one lucky winner a $100 giftcard to his incredible restaurant located on Mt. Pleasant. You can enter the contest here.
I wish everyone in the community a wonderful month. Stay warm!
Jethro Seymour, Mid-town Toronto Real Estate Broker