New rules on mortgage rates came into effect on Monday, October 17th. You may or may not have heard about this but it is worth the mention. A lot of the articles about this change are geared toward industry members and are hard to comprehend. So here we’ll try our best to uncomplicated it.
For some, this news won’t have much of an impact. Meanwhile, for homebuyers wishing to put a down payment of less than 20%, this could play a significant role.
Individual banks have had their own rates in which you needed to qualify for. The federal government is now implementing a stress test type of qualification in order to qualify for an insured mortgage. Now, the buyer must qualify at the Bank of Canada (B.O.C) posted rate which is currently 4.64%, even though your interest rate may be substantially lower.
An insured mortgage is when a homebuyer has less than 20% available for a downpayment or if the mortgage is insured through either Canada Mortgage and Housing Corp (CMHC), Genworth or Canada Guaranty. The premium acquired on an insured mortgage provides security to the lender in the event of a home buyer default. Essentially it protects the bank if you are unable to make payments.
Although these new regulations may seem unnecessary, they are aimed at protecting the financial security of Canadians and supporting the long term stability of Canada’s housing market.