A well qualified borrower opting for a 5-year fixed term may obtain OAC (on approved credit), a rate of 2.39% but will now need to qualify at the benchmark rate of 4.64%.
Assuming an income of $80,000, this borrower qualifies for a $475,000 mortgage under current rules based on 25-year amortization and 2.39% contract rate OAC.
Under new rules, the same borrower qualifies for $375,000 mortgage with the same 25-year amortization at a 4.64% benchmark qualifying rate, even though his mortgage rate is actually 2.39%..
This means that a borrower with 5% down who could previously afford a property worth $500,000, can now buy a property worth a maximum of $395,000 once the new rules come into effect.
As of November 30, 2016, the same rules above will apply to mortgages that lenders ensure that are low ratio mortgages (higher than 20% down payment.)
These changes will also affect refinancing.