LAKELAND - The rules have changed, at least when it comes to mortgages that is.
Effective June 1, those applying for mortgages will have a new minimum qualifying rate.
In May, the Office of the Superintendent of Financial Institutions (OSFI) announced that effective this month, there will be a new minimum qualifying rate for all uninsured mortgages. The federal government followed suit, and also tweaked the contract rate for mortgages that are insured.
"The changes require borrowers applying for an insured or uninsured mortgage to qualify at their mortgage contract rate plus two percentage points or 5.25 per cent, whichever is higher," explained Tyler Sylvestre, senior financial advisory at Bonnyville Lakeland Credit Union. "The stress test was previously a minimum qualifying rate of 4.79 per cent, nearly 50 basis points lower."
Deputy Prime Minister and Minister of Finance, Honourable Chrystia Freeland, said at the time of the statement in May, "For many Canadians, the most important investment they will ever make is the purchase of a home. Increasingly, however, that dream is becoming unaffordable and unattainable. The recent and rapid rise in housing prices is squeezing middle class Canadians across the entire country and raises concerns about the stability of the overall market."
Mortgage advisor with Jencor Mortgage Corporation, Julie Reesor, said whether you're a first-time home buyer or not, the effect will be the same.
"For borrowers who are at the allowable limits for debt service ratios, their borrowing maximum will be reduced by about 4.5 per cent for the gross mortgage amount," she stated.
"Many Canadians still qualify for a mortgage. The immediate impact as a result of this change will be how much they are able to borrow. From a long-term perspective, the mortgage stress guideline should protect consumers in the event of increases in the cost of borrowing - such as interest rates - changes in property tax levies, utility rate increases, and of course, the potential change in employment and income," noted Sylvestre. "The changes will be felt at all levels of home buying, what we may see is an increase in parent's co-signing on mortgage applications to help their children get into homes easier."
So far, neither Reesor or Brenda Haney, Realtor for Panache Realty, have received too much feedback from buyers.
"It's a little early to have much consumer reaction, but a few clients have been frustrated by the reduced mortgage amount they now qualify for," detailed Reesor. "Also, some clients do not understand, even though they were pre-approved for one mortgage amount, without an offer by June 1, they will have to reduce their purchase price under the new rules."
Haney said she could "see some people opposing the increase as it will result in lower qualifying amounts, and others being in favour of the conservative approach as it protects them in the future."
Sylvestre agreed, "It’s important to keep in mind that today’s low interest rates won’t last forever. The stress test rate helps protect them from future rate increases. Keep in mind, future life events that may have an impact on your ability to make payments. Not everything can be planned, but it’s always beneficial to consider where you and your family will be in a few years down the road when you’re looking at taking such a significant step in your life."
Regardless of whether you're out shopping for your first or forever home, Reesor stressed it's important to get professional advice.
Having them review the borrower's application could lead "to a mortgage that can help people get into the home or neighborhood they desire."
Someone with knowledge in the field can help find ways to get you the home of your dreams by restructuring debt through loan consolidation or re-writing existing loans to longer amortizations.
Reesor said, either way, a mortgage broker knows the ins-and-outs of the space.
"These changes are not really about affordability since the actual mortgage rate is two to three per cent lower than the qualifying rate. Even though the qualifying rate is mostly universal, all banks and mortgage lenders have their own guidelines that can impact the loan amount. Seek professional experienced advice," noted Reesor.
“It is vitally important that home ownership remain within reach for Canadians. We know that we need to take energetic action on housing supply and affordability in Canada," stated Freeland.
