What you need to know about the changes to Canada’s mortgage rules?

The new Mortgage Rules

The news that new mortgage rules are coming into effect during October and November cannot be seen as having an effect on an already limited rental market, but they can be financially restrictive for a first time home buyer in Guelph and other real estate borrowers. What may sound ominous is the fact that from October 17, any potential insured mortgage borrower will be subjected to what is called a “stress test.”

No, it does not mean the authorities are interested in your mental well being; it’s a test designed to determine whether you qualify at the Bank of Canada’s conventional five-year fixed posted rate. At present, it’s about 4.6 percent, substantially higher than the rate offered by the majority of banking institutions!

The ripple effects

The Department of Finance provided an estimate in an article published by the Bloomberg News, that approximately 8-percent of new-home purchases would be affected. However, this should not be interpreted that these potential buyers will suddenly descend on the rental market. The majority of buyers, where possible, will lower their sights and choose a market segment offering less expensive homes. The big question is, how will, for instance, a first time home buyer in Guelph be impacted!

Although opinions may vary, the general impression is that the potential buyers, who could be vulnerable and impacted, are those considering entry-level homes. For anyone, such as a first time home buyer; if you cannot qualify at the price of an entry-level home, then you will be restricted in readjusting your purchase power to a reduced pricing structure. Although the volume of buyers in this situation is uncertain, it is not thought to be substantial.

Purchase or rental

The ripple effect created by these new mortgage rules will extend to the rental market, although it is not believed significantly.  If you are at present renting a home, and then you could be encouraged to remain in this position, instead of deciding to readjust your home purchase goals.  Again, if you are a first time home buyer opinions and forecasts on this aspect vary. This includes the perception that a significant number of potential homebuyers will change their direction towards the rental market.

Other comments on this development include the forecast that a result of the new rules could see for the first time home buyer in Guelph less competition in the mortgage market, which ultimately creates increased interest rates and decreased approvals!