In October 2017, the Bank of Canada announced that new mortgage rules will be taking place beginning Jan 1, 2018. This will drastically affect borrowers if they are currently putting a minimum of 20% towards their down payment as of right now as they are enjoying the benefits of qualifying for the lower rate of their mortgage contract. As of next year, it will become mandatory for borrowers to qualify for a greater benchmark rate either at 4.99% or their contact rate with an additional two percent on top – therefore reducing the amount you can borrow by around 20%.
For example, if buyers currently qualify to be a in fixed term mortgage contract at a discounted rate of 3.14%, under the new rules they would have to add an additional 2%, thereby, they would have to qualify at a rate of 5.14%.
Borrowers however may be able to be exempt from the new mortgage rules should they either:
- renew their current mortgage with their existing lender where their amortization period stay the same and where no additional funds advance;
- if they purchase a property before the new rules take into effect (completion can be in the new year);
- if they get a mortgage with credit unions such as Coast Capital or Vancity due to the fact that they are not federally regulated banks, and as of this writing, only federally regulated banks are affected by this new rule.
With that being said, it is important that as real estate investors you understand how the new mortgage rules taking place will affect you so you can prepare for any changes ahead of time. Happy mortgage shopping!