A Primer On The New Canadian Mortgage Rules

There have been a lot of changes in the Canadian housing market since 2015 when Trudeau took office. The focus of Trudeau’s liberal administration within this market has been to clamp down on its growth within the main Canadian cities so that real estate becomes less expensive.

The new Canadian mortgage rules took effect January 1, 2018. These rules dictated that all borrowers, even those with a down payment of 20% or more, will now have to take a stress test to determine if they can actually pay the planned interest payments on their loan. Since January 2017, this has been the way things went for only people who were paying smaller down payments and also required mortgage insurance, but now this will be the case for everyone.

To get a picture of how many people this would affect, if you were to look at all of the people who got mortgages between 2016 and 2017, about 10% of these people would no longer qualify for those same loans. In terms of numbers, this would be about 100,000 homebuyers.

Here are a couple other ways that the new Canadian mortgage rules can affect you.

Even if you already took a mortgage loan out before this year, if you are planning on renewing it, you will still be impacted by these rules. Although you will not be required to take the same stress test when trying to renew with the same financial institution, if you were looking to renew with a different entity, you would have to take the test. Therefore, this can also limit the opportunities for homeowners when they are looking to renew their mortgage.

You have $100,000 left on your payment and decide to take out another $50,000 loan. Normally, to qualify for this loan, the lender would make sure that you could handle a $150,000 loan at 3.3%. After these new rules, they would have to make sure that you could qualify at 5.3%. As you may imagine, this can have some real implications.

All in all, the new Canadian mortgage rules are about preventing an affordability crisis, where housing is too expensive, and people are getting qualified for loans that they cannot pay back. These policies, along with several others that were enacted in the past, will help lower prices in the biggest housing markets of Canada, which many would say is a good thing. If you are not one of the people who may be influenced by this, then no need to worry, but in the end of the day, things can have unseen consequences, and only time will tell.

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