Tougher Rules for Insured Mortgages in CanadaPublished: October 6, 2016
This week Canada’s Finance Minister announced tougher qualifying rules for insured mortgages. As of October 17, 2016 insured buyers will qualify to borrow much less. Under the old rules, buyers could borrow more money because they could qualify for an insured mortgage using a full discounted rate for 5 years, provided they took the 5-year Fixed Rate. Here’s an example provided by our colleagues at INVIS(1).
The Old Rules
Assume a family with an income of $60,000 and a vehicle payment of $500. This family qualified for a mortgage of $285,000 at a discounted rate of 2.49%.
The New Rules
Assume the same family with an income of $60,000 and a vehicle payment of $500. After October 17, 2016, this family qualifies for a mortgage of only $227,000 based on the current posted rate of 4.64%.
Who Does It Apply To?
High Loan to Value, or High Ratio Mortgages are loans where the buyer has at least 5% down payment of the purchase price but less than 20%. These loans must have mortgage insurance which protects lenders in the event that the home buyer defaults.
Buyers with a down payment of 20% or more can obtain Low Ratio Insurance which covers 100% of the loan in the buyer defaults.
What it Means in the Okanagan/Shuswap
We’re trying to put this in perspective for our local market. OMREB(2) reports the average home price in the North Okanagan is $431,000(1). Again, let’s assume a family has monthly debt/payments of $500 for a vehicle, and property tax of roughly $2,000 annually. This family, with 5% down, would require a family income of approximately $100,000.
We agree, its paramount we protect our lenders and the economy from defaulting borrowers. But, early forecasts predict as many as 12.5% of potential buyers will no longer qualify. And, we are also concerned about the lack of modestly priced, quality homes available to buyers whose buying power has just been reduced. For buyers impacted by these changes there isn’t much time to regroup – the changes roll out quickly, October 17, 2016 is only 11 days away!
(1) Dawn Stephanishin, AMP. Vernon Mortgage Broker – Specialist. INVIS. http://www.dawnstephanishin.com/
(2) Okanagan Mainline Real Estate Board. North Okanagan: North Okanagan Monthly Statistics, September 2016. http://omreb.com/