New Mortgage Rules in 2018 Set to Affect First Time Homebuyers
Canadian mortgage rule changes are coming January 1, 2018. The OFSI (Office of the Superintendent of Financial Institutions Canada) has released new regulations detailing a stress test where lenders will now have stricter lending requirements for mortgages.
This means that also those seeking uninsured mortgages will have to afford to pay the contractual mortgage rate +2%. Essentially new rules are geared to ensure that Canadians can handle increased payments as interest rates rise.
Money Sense provided a great example as to how this would look in their article on the topic here:
“According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 2.83% amortized over 25 years can currently afford a home worth $726,939.
Under new rules, they need to qualify at 4.89%
They can now afford $570,970
A difference of $155,969 (less 21.45%)”
How will this affect first time homebuyers?
Well plain and simple, buyers will now qualify for less. This has good and bad repercussions because if interest rates go up, many homeowners will be sheltered from taking on payments they can’t afford. The downside is that those looking to get a house that is at the very edge of their budget will no longer be able to once the new rules take effect in 2018.
By no means should these new regulations be a deterrent for those hoping to buy for the first time. Buyers can still qualify at existing rates up until the end of December so those looking to buy more house than these rules would allow should probably get started sooner than later. At Lifestyle Homes Inc. we have a number of beautiful, quick possession homes ready to move into immediately, from prices as low as $390,000 to $625,000. Each Lifestyle home includes top quality finishings, expertly designed layouts and is covered under the New Alberta Home Warranty.
Lifestyle Homes Inc. has homes available for immediate possession in the following community’s: Legacy in Calgary from the $490’s, Drake Landing in Okotoks from the $390’s, Montrose in High River from the $590’s, and Coopers Crossing in Airdrie from the $590’s.
Many mortgage terms can be a little confusing so we’ve included a helpful glossary below:
Loan to Value (LTV): A risk assessment ratio (LTV= mortgage amount/appraised value of the property). Assessments with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is approved, the loan generally has a higher interest rate attached to it.
Uninsured Mortgage: Any mortgage with over 20% down payment does not need insurance as the lender is seen to have taken less risk. Previously these loans were exempt from the stress test.
Interest Rates: Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.
While these new rules may seem confusing, Lifestyle Homes has affordable options for all different budgets. Contact us today to learn more about how you can get into a new home now.