New Mortgage Rules UPDATE:
Here are some important things for you to read:
- New Qualification Rate (As of October 30, 2017)
- The Stress Test (what we know and what we don't know)
<<< New Qualification Rate >>>
First off, the qualifying rate is now 4.99% as of last Monday. This means that any high-ratio mortgage (less than 20% down) must be approved at 4.99% instead of the actual contract rate.
This will be about a 1% decrease in affordability for home buyers. Not significant. However, expect this qualifying rate to increase over the next few months due to how high the Stress Test for uninsured mortgages will go.
For example, 3.39% interest rate will qualify at 5.39% - it would be strange that someone with less than 20% down has a lower qualifying rate than someone who has 20% or more down.
<<< Stress Test >>>
By now, I'm sure you've heard all about the new Stress Test but there are a few things that we don't know:
- So far, Credit Unions are not affected by the new stress test. This means that credit unions will have a 20% edge in affordability than national lenders.
However, it is my strong belief that the credit unions will do two things: A) slow approvals for uninsured mortgages to a standstill - this is already happening - and pick and choose which mortgages they want to fund, and B) increase rates for uninsured mortgages on files that are easier to qualify with them.
If a client's purchase contract was written prior to January 1, 2018, we "assume that the old qualification rules are intact. We don't know this for sure yet... When the stress test for high-ratio files was introduced last year, consumers were grandfathered into the old rules.
Will more lenders start to do more creative financing with 35-year amortizations to qualify? There are currently three lenders we have access to that can...
Will the government mandate that variable rate mortgages must be qualified at a higher rate than 2% over the contract rate? As the law is currently written, a riskier variable-rate mortgage would qualify at 4.99% (the higher of 2.7% plus 2% and 4.99%), whereas fixed rates would qualify at 5.2%+. This new rule would force people to take riskier variable-rate mortgages to qualify for a larger mortgage - this is an unintended consequence of the new Stress Test.
Essentially, you are going to lose about 21% of your ability to qualify for a mortgage.
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