Ottawa tightens mortgage requirements
With interest rates at all time lows it doesn’t surprise us that another big change is coming. As of October 17, 2016 all insured mortgages will have to qualify at the Bank of Canada mortgage qualifying rate(MQR), currently 4.64%. Previously all variable rate mortgages and mortgages with terms less than 5 years used the MQR while all other mortgage products used the contract rate(the rate the borrower pays). The difference now is ALL insured mortgage products, including the popular 5 year fixed rate, will have to use the MQR. Keep in mind this will only effect insured mortgages, purchases with less than a 20% down payment.
Here’s a look at a simplified example(no debt) of how the new rule will change a purchase. If a couple has $100,000 of combined income and was planning to purchase a home with a 5% down payment the largest mortgage they could qualify for today is $487,000. Once the new rule takes effect, this number will be reduced to $384,000.
What does all this mean for people who have already entered into an Agreement of Purchase but the transaction hasn’t been finalized (purchase has not closed)? Any accepted offers submitted to the insurer prior to October 17, 2016 will still qualify at their contract rate.
Do you have questions regarding a real estate purchase? Please call us today at 519-495-4281!