Mondays announcement of new mortgage rules by the federal government made it clear that they are serious about the debt load Canadians are carrying. The only debts that the government have any control over in Canada is the mortgage debt estimated at 1.2 trillion. The other unsecured debt in Canada accounts for almost 600 billion. We all know the stories about the cat that got a credit card and the part time worker who got a $40,000 car loan. This is not a problem of the government, it is a problem of financial literacy with Canadians (lending and borrowing). Unfortunately the government can’t control these lending areas so they focus on the housing market, making sure that consumers can afford the payments on other debts not regulated. We will see how this experiment goes.
Here’s the impact on home buyers in Winnipeg:
- First time home buyers with less than 20% down payment must now qualify at a rate of 4.64% (federally prescribed rate) instead of their actual rate (2.25%-2.49%). This means that if first time buyers are looking to purchase at the maximum they can afford, they can expect the amount they qualify for to reduce by approx 20%. (Ex $300,000 home today, after October 17 $240,000) Based on my experience I expect this to impact approximately 1/3 of first time home buyers in the Winnipeg market.
- Home buyers with a 20% down payment will follow the same requirement for qualifying (4.64%) and amortizations reduced to 25 years for insured (Government of Canada) mortgages. If consumers want to go beyond 25 years to 30 years amortization they can expect to have a slightly higher interest rate (early indications are .10%) as these mortgages will require different funding sources than the government
- Refinancing your mortgage at or before renewal just became tougher. One of the top purposes for consumer to conduct a refinance of a mortgage is to pay out debts. These now follow the new rules and it will become more difficult to get approved.
There could be more news coming on these changes and if you really want to read more about these changes, here are a few links to some of the better articles.
My word of advice is this: If you are looking to buy a new home at any time in the next 5 years, seek the advice of a professional now who deals with mortgage qualification daily to get the best advice in your home buying planning stages. Do not add any debts to your situation without proper consultation so you can realize your home ownership goals.