First Time Home Buyers And New Mortgage Rules – What Does It Really Mean?
Lets look at some numbers
October 17th 2016 was the day new mortgage rules were implemented in Canada. Now that we’ve had a little time to adjust and things have settled down, here’s a look at what you can expect.
When applying for a mortgage instead of using the best fixed rate available in calculating the debt service ratio and total debt service ratios (numbers lenders look at when approving or declining an application) the ‘stress test’ benchmark rate will be used. Today’s current fixed rate is 2.69% and the benchmark rate is 4.64%
The idea behind the change is that as a potential home buyer you must be able to show lenders that if interest rates were much higher than they are today, you’d still be able to make your mortgage payments and other costs related to home ownership.
So what does this really mean, you ask. Here’s an example using some real numbers to help paint the picture.
Using an income of $80,000 (this can be a combined income) good credit, no additional debt, property taxes and $100/month for heat, qualifying numbers would look like this.
Purchase price of $500K with 5% down payment – qualifying rate: 2.34%
Purchase price of $400K with 5% down payment – qualifying rate: 4.64%
In reviewing the above example it clearly shows that a purchaser qualifies for approximately 20% less.
Moving forward the way we see it your options are:
- Re-adjust your ‘dream home’ ideal property to one you can afford under the changes
- Save for a larger down payment
- If you have existing debt work towards clearing or reducing this amount
- Wait until your income earning increases
As a first time home buyer, you are not completely out of luck but you may not be able to purchase your long term dream home.
We’re happy to work some numbers for you. Give us a call or fill in an online application and we’ll let you know what you’re qualified to shop for. With a good realtor and your pre approval numbers in hand, home ownership is still attainable.