Thursday, January 4, 2018 / by Richard Kinnell
New Changes Coming - The Stress Test
In 2016 the Government introduced new mortgage rules for insured mortgages, or high ratio mortgages (those with less than 20% down). Buyers have to qualify at the set "Benchmark Rate", regardless of what their actual interest rate was going to be on the mortgage.
This effectively reduced buyers purchasing power by a whopping 20%!! Buyers who may have been approved for financing on a $400,000 purchase, were now only able to shop for houses up to $320,000 - a reduction of $80,000! This had a drastic effect on many buyers. Those who were looking at the $400,000 price point may have been considering small detached or semi-detached homes as their first purchase, and were now forced into shopping for apartment style condominiums, because that is all their budget would allow for in this city.
Change Is Good, Sometimes...
Now I am not saying that I agree or disagree with the new rules coming - really, the Government doesn't care what I think! But what I know, is that it is very important for those looking to make their first purchase, move up, move down, purchase a revenue property, or even re-finance their current property to understand these new rules.
Impacting All Buyers
The new changes now impact buyers with more than 20% down - a conventional mortgage. Those with 20% or more to put down on a home previously did not have to pass the same additional "stress test" in order to obtain financing. That is changing on January 1, 2018. Buyers in this category will now have to qualify at the "benchmark rate" OR, their actual rate, plus approximately 2%, in order to obtain financing. This will now reduce their purchasing power by approximately 20% as well.
If you have a pre-approval currently, you need to know that if you don't buy prior to the new year, your pre-approval WILL change! Be it for the better or worse, the type, location, and style of home may be completely different than what you were shopping for before, because of your reduced budget.
There is a high level of inventory on the market in Calgary and the surrounding area right now, so there are plenty of homes to choose from. We are expecting to see a spike in sales in the next couple months as many buyers hurry to get in before the new rules come into effect.
QUESTIONS ?! If you have any questions about the market, or the mortgage rule changes, feel free to contact us anytime!
Source: Mortgage rule change information obtained from documentation from Mark Herman, AMP, B. Comm., CAM, MBA-Finance, who is a mortgage professional in Calgary with Mortgage Alliance. See his full document below for additional information!