New Mortgage Rules Take Effect Today

On Oct 3, the Government of Canada announced a series of new measures aimed to cool the housing market in Canada. Among them were stricter mortgage rules for insured mortgages. These new mortgage rules will take effective today, Oct 17, 2016.

The new mortgage rules are designed to make it harder for home buyers to get the mortgages they need. Many will be forced to borrow less.

In Canada, all mortgages with less than 20% down payment must be insured.  The federal government sets the rules for how these insured mortgages are approved.

The New Mortgage Rules

The new mortgage rules require the use of the Bank of Canada’s posted 5 year conventional mortgage rate (benchmark rate) to qualify borrowers for all insured mortgages. The rate currently stands at 4.64%.

For more information about the Bank of Canada’s benchmark rate, visit

For more information and details of the new mortgage rules, see Technical Backgrounder: Housing Insurance Rules and Income Tax Proposals (Revised October 14, 2016).

What It Means for Home Buyers

Before today, only variable rate mortgages or fixed rate mortgages with a term less than 5 years are required to be qualified by the Bank of Canada’s benchmark rate.  Fixed rate mortgages with a term of 5 years or longer can be qualified using the actual contract rate, which banks are offering at as low as 2.29% recently. Home buyers who need to borrow more can simply opt for a 5 year fixed rate mortgage, instead of a variable rate or one with a shorter term.

The new mortgage rules effectively close the 5 year fixed rate option and force home buyers with less than 20% down payment to borrow less.

The table below illustrates how much a home buyer with a $100K annual income can borrow under the old and new mortgage rules.



Now (Effective Oct 17, 2016)

Qualifying Rate



Max Mortgage Qualified with $100K income(*)



Down Payment



Max Purchase Price



* Assume borrower has no other debts and a perfect credit score.

Assuming a home buyer has a $100K annual income, no debts, and a perfect credit score, under the old rules where he/she can be qualified with a 5 year fixed rate of 2.29%, he/she can borrow up to $640K in a 5 year fixed rate mortgage.

Now with the new mortgage rules, the same buyer has to be qualified with a higher qualifying rate of 4.64%, instead of 2.29%.  This means he/she can only qualify now for a maximum of $510K in mortgage, $130K less than the amount he could have borrowed under the old mortgage rules.

If this buyer has $100K for down payment, he can now only buy a $610K home, instead of a $740K home under the previous mortgage rules.

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Antonia Yan

Antonia Yan

Sales Representative
CENTURY 21 Leading Edge Realty Inc., Brokerage*
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