As you have probably heard by now, the Federal Government has announced changes to the mortgage underwriting guidelines, which will make it harder for purchasers to obtain a mortgage. These changes will come into effect on January 1, 2018.
How does this affect recent purchasers?
If you have recently purchased from us, these new rules don’t affect you at all. All purchasers of homes with a long-term builder capped mortgage, approved on or before December 31, 2017 will have their mortgage remain valid even if the closing is after January 1, 2018. We recommend that if you haven’t already, you should contact your Bank Specialist/Site Mortgage Representative as soon as possible to get your mortgage approved well before December 31, 2017. This will protect you by keeping the terms of your mortgage approval valid until your closing.
What happens in 2018?
Transactions taking place after January 1st, however, will be subject to the tougher rules. What are some of the major aspects of these new rules?
Everyone is subject to a stress test
Previously, purchasers providing 20% or higher as a down payment were not asked to pass a stress test – only those seeking insured mortgages with less than 20% down were subject to them. Now, no matter what the down payment, purchasers will be subject to the stress test. Not passing this test means no approval.
What is the stress test?
The test simply determines whether or not a buyer could still afford to make payments if mortgage rates were to rise to the Bank of Canada’s posted 5-year fixed rate. This rate is usually about 2% higher than what buyers negotiate for their actual mortgage, so this adds a layer of difficulty and lowers the potential amount most can borrow.
The test also requires that a buyer’s mortgage payments, taxes, utilities, etc… total no more than 39% of their monthly household income.
What about mortgage insurance?
As of November 30th, 2017, mortgage insurance will also follow stricter guidelines. To qualify for low-ratio insurance:
• the mortgage’s amortization period must be 25 years or less
• The purchase price of the home must be less than $1 million
• The home must be lived in by the owner
• The purchaser must have a credit score of 600 or higher
Does this mean I should buy a new home now?
We recommend you should take advantage of the remaining weeks in 2017 and find your perfect home. Clearly, financing will be easier to obtain now than in 2018. And due to limited supply, prices are not expected to drop.
Starlane has a great selection of Semis and Singles at Mountainview Heights in Waterdown and only FIVE 40-foot singles remain at Saddle Ridge in Milton. And of course, your five-star builder provides incredible value and quality in every home.
Browse through our available new homes now and see if you can find your dream home before the stringent new rules come into effect.