Less Than 20% Downpayment Buys You 20% Less Home

In mortgage news this week, CMHC announced a tightening of the rules for home buyers looking to get into the housing market with less than 20% downpayment.

Your monthly mortgage payments will be calculated based on the Bank of Canada Bench rate (as of today 4.64%) versus using the posted five-year fixed rate (as of today 2.39%).

 

Why is the government doing this?

 

Basically, the government wants to stress test the buyer’s ability to continue paying the mortgage into the future, if and when rates go up.

 

Let’s take a look at how this plays out after Oct 17th under the new rules using a 300k mortgage as an example:

 

Qualifying payment would be $1330 a month but the qualifying rate will now be 4.64% (instead of the current actual rate of 2.39%).

Because of the higher qualifying interest rate, they will only qualify for a 237k mortgage, not 300k. This is a decrease of 21%.

Actual mortgage payments will still be based on the actual rate of 2.39% so, because of the lower mortgage amount, will also be lower at $1050.

 

Conventional mortgages with a loan to value of less than 80% (20% or more down payment) are not subject to the same stringent rules. However, as of November 30th many lenders will be using the same rules for both types of mortgages (4.64% qualifying rate and 25-year amortization).

 

How does this affect your ability to qualify for a mortgage?

 

Home buyers will still qualify for a mortgage but will have to adjust expectations for the style of home, features and benefits based on the new affordability.

 

Talk with your REALTOR® for details about your specific situation.

 

Take a look at this handy chart: