In October 2016, the Canadian government announced sweeping changes to mortgage applications , aimed at protecting the financial security of Canadians, while supporting the long term stability of the housing market in Canada.
The key changes are:
Tighter insurance rules – when a home buyer has less than 20% down, the mortgage must be insured. This insurance provides security to the lender in the event of home buyer default. Stringent rules previously applied only to “high ratio” (lowest down payment) mortgages now apply to all insured mortgages.
Stress Tests – banks pre-approve mortgage amounts based on the home’s carrying costs not exceeding a certain percentage of a buyer’s income. New “stress tests” on insured mortgages establish this amount based on the Bank of Canada’s posted interest rate, and not the bank’s promotional rate, which is typically two or more percentage points lower. This may result in a lower pre-approved maximum home value for buyers.
Now more than ever home buyers are going to rely on mortgage brokers like the team at BiggerPiggyBank.com for our guidance and expertise in navigating through these regulatory changes. There are differences amongst the many lenders that we have access to, and the greatest value a broker can provide is advising which lender is best suited for each home buyer’s unique needs.