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30 Nov

New Mortgage Rules Effective January 1, 2018

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Posted by: Amrit Bains

Are you aware of the new mortgage rules effective January 1, 2018?

Do you anticipate needing to refinance, consolidate debt, or use your home equity towards future expenses such as a home renovation project, or investment, or would you like to have some cash put aside for a rainy day? If the answer is YES, then please contact me today! 

The Federal Government recently announced they would be changing mortgage rules to qualify for a mortgage in Canada. These new rules come into effect on January 1st, 2018

What does this mean to you?

Going forward, it will significantly impact the amount of mortgage you can qualify for. Beginning January 1, 2018, a new “stress test” will be applied to all new conventional mortgages – and not just those mortgages that require mortgage insurance (down payment or equity of less than 20%).

How can you take control?

Obtaining an approval before the end of the year, prior to the new rules taking effect could make the difference in the amount of equity you are able access from your home.

If your renewal date falls after April 2018…. don’t despair. It may make sense to refinance early, and get what you need before the rules change. Breaking your current mortgage with only a few months remaining on the term is less expensive than breaking it when there are a few years left. I can guide you through the numbers to see what options are best for you.

Here is how the rules would play out for a family with $100,000 in annual income.

Scenario 1:

The family is offered a mortgage rate of 2.83 per cent, which is more than two percentage points below the current Bank of Canada five-year benchmark of 4.89 per cent.

 If they were to apply for a mortgage today, with 20 percent down payment, a five-year fixed mortgage, and a 25-year amortization period, they would be able to afford a home worth $725,000.

If they were to apply for a mortgage on or after Jan. 1, they would be able to afford only $570,000, with a 20 percent down payment.

 Scenario 2: ​The family qualifies for a 3.09 per cent mortgage. That rate, plus 2 percentage points is higher than the Bank of Canada’s 4.89 per cent five-year benchmark. The family would then be vetted using a 5.09 per cent rate.

Under the current rules, they would be able to buy a home worth $705,000 with a 20% down payment.

With the new guidelines on Jan. 1st, they would be able to afford a $560,000.

If you’re thinking of refinancing, right now would be a good time to do so. 

If you know of anyone that is in the market for a mortgage feel free to pass along my contact information to them.

If you have any questions, please do not hesitate to reach out to me at any time.