The federal government has confirmed a new mortgage stress test that will come into effect on January 1, 2018. The new qualifying rules will apply to home buyers looking for an uninsurable or conventional mortgage. You will need to qualify on either the Bank of Canada benchmark rate (4.89% at time of writing, updated weekly) or your mortgage contract rate + 2% - whichever is higher. Currently, buyers in this situation only need to qualify at their contract rate.
As an example, let's say that you've saved $100,000 for a down payment. Today, using a typical rate, you'd be able to buy a $500,000 property if your annual income is $70,000, assuming you have good credit and will take a 30-year amortization on your mortgage. On January 1, you would either need to:
- Have an annual income of $90,000 – an increase of $20,000 (better ask for that raise now!); or
- Consider property in the $400,000 range – a loss in buying power of $100,000.
Who does this affect?
This rule will affect anyone who is looking for mortgage financing on a property purchase or refinance in Canada with a loan-to-value (LTV) ratio of 80% or less. Whether you are a first time home buyer, buying a second home, or buying a rental property, if you are making a conventional down payment you will need to pass these qualifying rules.
We've written previously about other factors that could put your mortgage in the uninsurable category, including self-employed income or rental income.
What do you mean by qualify?
A lender will consider your overall level of debt to see whether your income will allow you to take on the additional payment of a mortgage. This debt-service ratio must meet certain levels set by the government in order for the lender to consider your file.
What should I do next?
If you have saved a large down payment and are considering a home purchase in the near future, you may want to accelerate your search to see if you can make an offer before the end of the year. If you are considering refinancing your current property in early 2018, you should talk with a mortgage broker to find out what options are available to you.
The Auxilium team is up-to-date on all of the latest industry changes in order to provide the best service for our clients. If you want to discuss your particular situation, contact us today for a free consultation with one of our brokers: call Toll-Free 1-855-590-6520 or visit us at 307 Goldstream Avenue during regular business hours. We can also arrange an appointment evenings or weekends to work with you.
Auxilium Mortgage Corporation is based in Victoria, BC and works with clients locally and across Canada. The Auxilium team has over 100 years of combined financial experience and access to dozens of lenders to help you meet your goals.