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Not everyone is aware of the most recent round of mortgage rule changes recently implemented by our government.  This is why it is more important than ever to work with a Mortgage Broker who is a true professional in the world of mortgages.

These changes already have or will affect most Canadians, and that means you, whether you are a current homeowner or are looking to buy a home.

These changes are heavily impacting home buyers and home owners in a few ways:

1.     They make it more challenging to qualify for a mortgage

The first change announced was the introduction of a “stress test” .  The term stress test refers to a higher interest rate that now has to be used to qualify you for a mortgage.  Essentially, by qualifying at a higher rate it means you can still afford your mortgage should rates go up during your 5 year term.   Remember, this rate is not what you will actually be paying, you will be paying what is called the contract rate. 

To put this in perspective, the lowest 5 year fixed rate for qualified borrowers as of today is 2.59%*.  The stress test requires we base your payment off a rate of 4.64%.   That is just over a 2% difference and affects the purchase price most people qualify for by reducing it by approx. 20%.  So, if you qualify for a purchase price of $350000 at the contract rate of 2.59%*, under the new rules of qualifying at 4.64* you would qualify for approx. $280000. 

2.     They reduce options for those needing or wanting to refinance or buy a rental property. 

The government eliminated the option for rental properties and mortgage refinances to be insured by one of our three insurers in Canada, the most common being Canada Mortgage and Housing Corporation (CMHC).  This means the funds lenders use for these programs are more expensive.  This is where things get a little more complicated as different banks and lenders have different sources of money that they use to lend to us for our mortgages and leads to the final impact of these changes.

3.      They have increased the cost of borrowing through interest rates and higher mortgage insurance costs.  This is happening in a few different ways:

a.     They are increasing the cost to mortgage insurance

b.     They eliminated mortgage insurance for those buying rental properties and wanting to refinance which means the cost of funds on these products went up for the lender and of course they pass this on to us, the consumer, through potentially higher interest rates

c.     They changed the criteria to qualify for an insured mortgage which means if you are outside of the parameters you may face a higher interest rate.   This is affecting mostly strong borrowers with 20% down payment or more which does not make sense.

It’s also important to note the changes impact different lenders differently.  Some lenders have investors and some have their own money to lend (which is really our money that we deposit and invest with them that they turn around and lend out, at a higher rate then they pay us on our savings and investments).   This means not all lenders and banks are on an equal playing field anymore. And this means less options and less choice for the Canadian mortgage consumer.

I personally don't think a change made by the government should reduce options available to Canadians and increase costs.  This is not how a free market is supposed to work.  A free market is an economic system in which prices are determined by unrestricted competition between privately owned businesses.  It is no longer a fair playing field in the world of mortgages and that has led to reduced options and higher costs.

It is now more important than ever before to work with a professional who understands these changes and the impact they have on mortgages and your options.  I am the perfect person to guide you through and help you navigate these uncertain waters.  I am always available to discuss these changes in detail as to how they may affect you or someone you know. 

- Nicki