The new guidelines aimed at taking some of the risk out of the market will come into effect Jan. 1/2018. They include as speculated a new stress test for buyers who have a down payment or equity in their home greater than 20% and do not require mortgage insurance. Mortgage Insurance is not required when your down payment or equity is greater than 20% of the value of your home. You will now have to prove you can continue to make your mortgage payments if interest rates rise. Potential homebuyers will need to prove they can still service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage points or the five-year benchmark rate published by the Bank of Canada. The 5 year benchmark rate currently sits at 4.89%. Best 5 year rate when you have a down payment greater than 20% is currently 3.24% so you will now have to qualify to make a payment based on a rate of 5.34% in this scenario. A family with annual income of 75,000.00 that can afford a home worth $600,000.00 under current rules by putting 20 per cent down with a five-year fixed mortgage rate of 3.34% and a 30-year amortization would see its purchasing power plunge to $475,000 under the new stress test rules. These rules are not only for the home buyer. They will also apply to you if you want to refinance your existing mortgage or if you opt at renewal to move your mortgage to another lender for a more favorable rate.
