October 2016 saw new rules for those putting down 20% or less using CMHC (Canada Mortgage and Housing Corp) insurance ie an ‘insured mortgage’—now as of January 1, 2018 those securing an uninsured mortgage will have new guidelines applied as well, a new ‘stress test’ to ensure, should rates change, you’ll still be able to meet your mortgage obligations. An uninsured mortgage is any buyer putting down more than 20%, even when putting down 25% or 50% this new stress test will apply
What is that test? Well, no matter your mortgage rate if you’re dealing with a federally regulated lender ie your bank, you’ll be assessed on that rate plus 2% OR the current Bank of Canada 5 year benchmark rate which right now is 4.99%, of course the rate you’ll be tested against is the higher of the two.
Let’s say you’re getting a mortgage at 2.75%, you’ll be assessed on 4.75% or actually 4.99% as that’s the greater of the two.
These rules will apply to new mortgage applications as well as renewals IF you switch lenders.
Let’s do some math—
$100k annual income
Your plan is to put 20% down and your mortgage rate will be 2.84%
Assuming no debts to report your maximum rounded affordability is $776k
But with the new rule you will be tested on 2.84% + 2% or most likely the higher Bank of Canada rate of 4.99% Your maximum affordability, if putting down the same amount of money, changes to $651k, yes there’s a difference.
Are you buying now, like before Christmas now? If your deal is firm, a signed agreement of purchase and sale you should be assessed on the current guidelines (reminder: if putting down less than 20% you’re subject to the higher stress test already, no rush for you).
Always check with your mortgage broker, they are the master number crunchers, they know the ins and outs of financing and are intimately acquainted with your financial picture. If you fail the new stress tests you may want to adjust your home search, also there are alternative or secondary lenders to consider though the rates offered tend to reflect the risk ie they’re higher. Check with your mortgage broker for more detailed information on alternative lenders.
To play around with your own numbers take a look at the affordability calculator on ratehub.ca Enter your parameters and note the Land Transfer Tax at bottom, don’t forget this is a part of your closing costs, make sure to enter your city, only in Toronto do we have an extra land transfer tax to pay, other municipalities pay the provincial land tax only.
You can also visit our calculator for mortgage math and the Land Transfer Tax
*as with any financing there are numerous details that may impact, always check with your broker or lender