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How New Mortgage Rules Can Impact You
Prices for homes in most regions across Canada were up in 2017, but new mortgage rules initiated by the Office of the Superintendent of Financial Institutions (OFSI) could make it more difficult for potential buyers to purchase a home in 2018.
This means that many housing markets across the country could see reduced purchasing power in 2018 because of the new OFSI mortgage rules that took effect on January 1. Since the rules are just about one month old, many Canadians may be caught off guard if applying for a mortgage and also taken by surprise if they are denied a mortgage because of the new rules. To alleviate confusion, we’ve simplified the broader rule below, so you can assess how this may affect you and your dreams of purchasing a new home in 2018.
In a nutshell: Canada’s federal financial regulator announced last fall that all uninsured mortgage borrowers (buyers who put down 20% or more) must now also qualify against the Bank of Canada’s five-year benchmark rate (currently 4.99%), or at their contractual mortgage rate, plus 2%. This, the regulator suggests, will ensure borrowers can still pay their mortgage debt as interest rates rise (as they already have this year).
The new mortgage qualification rules are expected to have the greatest impact on first-time homebuyers. However, the mortgage rules may not affect you if you were pre-approved for a mortgage or signed a purchase agreement on or before December 31, 2017, or if you refinanced your mortgage on or before this date. You might also find yourself unaffected if you qualify at the higher rate (which is currently about 7%) on or before December 31, 2017.
What does all this mean if none of these above exceptions apply to you? According to Mortgage Professionals Canada, it could be quite unsettling. The organization reports that 18% of those people looking to purchase a home (approximately 100,000 homebuyers) will not qualify for a mortgage on their first-choice properties because of these new rules. Of this number, the agency reports, about half of them will only be able to qualify for a mortgage if they are willing and able to adjust their budget and their expectations.
How do you do that? The simple answer is to stick to a budget, and do not overextend yourself. If possible, you should try to have some liquid cash on hand. This means maintaining a financial buffer (three to six months’ worth of mortgage payments), so you are not surprised by interest rate increases and any unexpected hiccups along the way.
Remember that just because you qualify for a mortgage, doesn’t mean you can actually afford to pay that mortgage month after month. Don’t get in over your head. Take a very honest look at your expenses to consider how your mortgage payments and additional, ongoing costs of owning a home—like upkeep, maintenance, property taxes, snow removal, etc.— will impact you. You may come to realize that you might need to make some compromises on what you are willing to give up in order to get into—and stay in—the home of your dreams.