2016 has set record numbers in sale price and has been the hottest sellers market we have ever experienced. I am sure you have seen on the news about the major changes that the Federal Government has made concerning mortgages in an effort to slow down the housing market.
Essentially, they have just made it harder for first time buyers to get into the market.
These changes start October 17th.
Here are some of the changes which may affect buyers:
Any purchases with a down payment under 20% now have to QUALIFY for the mortgage at the bank of Canada posted rate of 4.64% even though the client will be getting a lower rate of 2.39%. Since they are qualifying at a higher rate, it means that their purchase price will be substantially less.
For example, if a buyer who had been pre-approved for a maximum purchase price of $280,000 at 2.39%. They are putting 5% down payment. If the buyer does not buy until after October 17th, they now have to qualify at 4.64% even though they will be getting the lower rate, which means that the maximum purchase price is now $230,000.
Because many of the lenders use monoline lenders who only do mortgages, they back-end insure all deals with CMHC. This will mean that all the deals that are placed with them that are conventional (20% or more down payment) will fall under the same rules and have to qualify at the higher rate.
These monoline lenders also will no longer be able to use a 30 year amortization on conventional deals which means the amount purchasers can buy for will also decrease.
The Mortgage Broker in my office Bryan Guertin of Mortgage Intelligence, informed me that they will be forced to send many of their deals to the bigger banks that don’t always offer the same low rates or have the niche products that they use for self employed etc.
With less competition from the monoline lenders, the banks will likely start pushing the mortgage rates up higher.
He went onto say that they have been advised that most of the monoline lenders have temporarily stopped lending on self employed and on rentals.
There was one positive he mentioned and that is as mortgage brokers and they don’t just work for one bank, they have lots of different lenders including trust companies and credit unions as well as some of the big banks that will not have to make the changes as long as the deal is still conventional. If it is a high-ratio deal, it affects everyone at every lender.
Finally he wanted me to know and more importantly all the people that I work with if you are putting less then 20% down payment, it may affect the amount you can purchase. If you put an offer in before October 17th then you will still qualify under the old rules.
This is a lot of information to digest and we are still getting information day-to day from all of the lenders. Please email or contact me if I can be of service with your real estate goals.