How the Oct 17th Mortgage rules affect me

Now that the day has come and the “Canada Mortgage Stress Test” is kicking in today, lets see how this could affect the average person buying a house…

Here is the average scenario which we will call Scenario 1. This has a household with 2 incomes combining for $80,000/yr in Gross income. Looking to purchase a $400,000 home, which has an annual property tax of $4200.

As many of you may know, Gross Debt Servicing Ratios have always been the “Stress Test” in the past, and typically lenders like to see an applicants ratios lower then 32{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}

Scenario 1

Oct 17 rules Before.jpg

Now lets see how this deal would look with the Oct 17th rule in place..(scenario 2)

Oct 17 rules Aft. 39.jpg

As you can see, the payment and actual rate stay the same at 2.49{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}…. the issue is.. the GDS ratio has now gone all the way up to 38.145{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}!

Good news and Bad news here… Good news is: We here at MT can get exceptions up to 39{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}, so in this specific case, we could “possibly” still get these clients into their $400,000 house.

The bad news is, what if you can’t obtain that “exception”?… and you had to remain under the typical 32{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} GDS???. As you can see below in Scenario 3, you have to drop your purchase price!. So instead of buying for $400,000, you might have to buy for $80,000 less!…and buy for $320,000!

Scenario 3

Oct 17 rules Aft. 32.jpg

So, to Summarize, if not prepared properly, and set up for exceptions, this rule change can absolutely affect your home buying capability, and well….. add a lot of “STRESS” thanks to this new “stress test”.