There has recently been a change to mortgage rules that will make pre-approvals slightly tighter. As of now it appears that they will only be targeting insured mortgages (less than 20% downpayment). The reason is to protect the government from over lending, however it could make it more difficult for first-time buyers to get into the market.
As of October 17, 2016, insured mortgages are going to need to be approved at Canada’s posted rate (which is generally higher than the contract rate). Currently the posted rate is 4.64% compared to a contract rate that might be anywhere from 2.1% – 2.5%. Essentially what this new rule is doing is increasing buyer’s Service Debt Ratio’s which are part of the ratios that banks look at prior to approving mortgages. Overall this should bring down buyers purchasing power by roughly 20% if they do not have a 20% downpayment.
New Mortgage Rules and Regulations in the Real World
A buyer with an annual income of $100,000 and $40,000 saved for a downpayment could previously be approved for a $665,435 at a rate of 2.17% (currently the lowest 5 year rate that we have seen). With this new rule in effect this same buyer will only be approved for a $505,762 purchase price or 24% less than last week. The buyer will still be able to get the same rate (2.17%) but the stress test during the approval process will only lend them the lower amount.
There are also talks of adjusting the approval process for low-ratio mortgages as of November 30, 2016.
For a more complete understanding of the new changes to mortgage rules please speak to your mortgage broker or give us a call and we can refer you to someone on our team.
More info can be found here as well: http://www.fin.gc.ca/n16/data/16-117_2-eng.asp