How will the rule changes affect your pre-approval?

On October 17th, 2016, the government imposed a new rule where all high ratio insured mortgages, mortgages with more than 20{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} down, must qualify at the stress test rate of 4.64{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}. The stress test was implemented to assure the lender that the home buyer could afford their home should the rates increase. Since then, the stress test rate has risen twice and is currently sitting at a rate of 4.99{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}.

As of January 2018, all insured and uninsured mortgages will need to qualify at the posted stress test rate. This will drastically affect how much house you will be able to afford.

For example:

According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of $100,000 with a 20{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} down payment at a five-year fixed mortgage rate of 2.83{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} amortized over 25 years can currently afford a home worth $726,939.

Under new rules, they need to qualify at 4.89{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}

They can now afford $570,970

A difference of $155,969 (21.45{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} less)

You may want to strongly consider getting a pre-approval before the new rules come into effect. At Mortgage Teacher, it is possible to hold your rate for up to 120 days if we are able to get your qualified. If you are looking at houses in a specific price range, keep in mind that similarly to the example above, you may only be able to qualify for significantly less after January.

For mortgage pre approval or to assess how the changes may affect you, contact Mortgage Teacher today.