October 17th marked the beginning of some important changes to the mortgage process in Canada. If you are putting less than 20% down, you'll have to qualify at the Bank of Canada interest rate.
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There are some new mortgage rules that just went into effect here in Canada that we wanted to discuss with you today. We have known about these changes for a while, but they just went into effect on October 17th.
Before these changes happened, you could qualify for a lender’s best rate when applying for a mortgage, which in some cases was down near the 2.3% range. However, this rule has changed and now you will have to qualify at the Bank of Canada rate of 4.65%.
Of course, this change only affects buyers that have less than 20% to put down. As we understand it, anyone who can put down 20% or more on their mortgage is not subject to these rule changes.
These changes will affect many buyers.
The previous government had brought in a similar rule change, but it only affected a certain segment of the market, such as those with a three-year term or variable interest rate mortgage. Those people had to qualify at the Bank of Canada rate of 4.65%. With this change, all those who put less than 20% down will have to qualify at that same rate.
It makes sense that the government is doing this, because they don’t want a repeat of what happened in 2007 and 2009 in the United States with the subprime mortgage crash. At the end of the day, it’s going to have a direct impact on a lot of people, taking them out of certain price points or forcing them to buy a condo instead of a single-family home, or an apartment condo instead of a townhome. This could also lead to a lot of buyers sitting on the fence until they have more money to put down.
How will these changes affect sellers? Well, if you have planned on selling and buying a new home or want to pull out some equity in your home for renovations, you are going to have to qualify at that 4.65% rate too if you don’t have 20% to put down.
This is a pretty brief overview of the changes. If you have any questions about them or questions about real estate in general, give me a call or send me an email. I would love to hear from you.
