Are you in the market for a new home? Well as your mortgage broker in North York, it is our duty to inform you on the new Canadian Mortgage Rules (also known as the Stress Test Rules) before you start the home loan process.
As of January 2018, new rules were enacted across all of Canada in regard to getting a loan. The biggest change is the new Stress Test Rules.
What is the Stress Test?
The new stress test is done to see what borrowers qualifying rates would be. This new rate is either the 5-year benchmark rate by the Bank of Canada, which is currently 4.89%, or your current contract mortgage rate plus an additional 2%. Whichever is higher of the two rates, is what lenders base your qualifying rate off of.
This is affecting Canadians affordability, even if you have a down payment of 20% or more. It is important to go through your finances with the new mortgage rates in mind because you might have a different price range to shop around in.
Why the Change?
The purpose of the new mortgage rules is to help mortgage consumers not borrow more money than they can afford. Recent trends suggest that a lot of people would borrow the most amount of money they can afford, which is creating more financial debt. The new rules reduce that limit by increasing interest rates and forcing homeowners to buy cheaper. The new rules are also a way to cool down the market.
Toronto and Vancouver have a particular high housing market, and the rates keep increasing. The government is hoping to cool down the market so the prises stop rising exponentially.
Can you Refinance?
Even if you already have a set mortgage and are wanting to refinance, these new rules still apply. You are allowed to refinance up to 80% of the home’s value and pass the same stress test rules as listed above.
Restrictions on Loan-To-Value (LTV) Ratios
Loan-to-Value (LTV) ratio represents the ratio of the total mortgage debts registered on a property versus the market value/purchase price of that property. As an example, if buyer is putting 20% down payment for the purchase, mortgage debt will be 80% of the purchase price. In other words, the LTV will be 80%.
In the past, mortgage lenders have tried to get around certain LTV limits by partnering with other lenders. This is no longer allowed, with the exception of credit unions and private mortgage lenders. And a mortgage broker has direct access to several such credit unions or other lenders to be able to offer the exact solution the buyer is looking for.
Buying a house is a big commitment, so it is important that you are financially ready to take on this responsibility. If you are looking for a local North York mortgage broker, call us today to get started 416-857-6030.