From Financial Post
With the new mortgage rules coming into effect across Canada, many homebuyers are wondering what it means for them, and whether they can still enter the market at all. One of the new rules applies a stress test to borrowers, which means they need to qualify at a higher rate when they have less than 20 percent as a down payment. Before these new rules, mortgage borrowers who took a 5-year fixed-rate mortgage only had to qualify for the mortgage payment based on the interest rate they were getting. For example, if the current 5-year fixed-rate mortgage is at an interest rate of around 2.34 percent, their qualifying payment would be based on that. Now, with the new rules, that same borrower would have to qualify for a rate at the Bank of Canada’s 5-year fixed posted rate, which is currently 4.64 percent.
The new rules aim to make sure that if interest rates ever go up and are much higher than they are today, homeowners will still be able to make their payments. But, the result is also an approximately 20 percent decrease in the amount of mortgage money available to borrowers.
Undoubtedly these changes will impact first-time home buyers, many of them millennials. It could mean they have to scale-down and shift their plans to purchasing a home with a smaller mortgage. The fact is, these rules are here and they will have some effect on the market. It’s largely out of our control. But, there are factors that buyers can focus on that are in their control to maximize their affordability—one being their credit score.
A higher credit score could result in a higher mortgage pre-approval amount.