The biggest government mortgage rule change that happened in the fall was forcing anyone who had less than 20% down to qualify for their mortgage at an arbitrary rate called the 5 year benchmark or posted mortgage rate.
Currently this rate sits at 4.64% and has relatively little to do with what customers have paid. We have to go back 8 or 9 years to see when customers actually had to pay this rate on a mortgage. In addition, it doesn’t even look like fixed mortgage rates will approach this level again for years to come.
The government came up with this knee jerk reaction in the fall primarily due to rising prices in Vancouver and Toronto. However, this mortgage rule change did nothing to address the speculative buying in these markets which was caused by people who had more than 20% down and not the buyers this rule change is actually hurting.
Now people are faced with qualifying at a much higher rate than they are paying with higher prices which is making home ownership even more difficult for the average person in the country.
Here are some figures for you to think about.
1) To borrow $300,000 at a rate 4.64% the payment is $1683 per month on a 25 year mortgage.
2) To borrow $300,000 at a rate of 2.79% (the rate you actually pay) the payment is $1387 per month on a 25 year mortgage.
Under scenario #1 above you need approx. $65,000 of income to qualify for the mortgage when we add in property taxes and heating costs.
Under scenario #2 above you need approx. $55,000 of income to qualify for the mortgage when we add in property taxes and heating costs.
So in the above example, which we would say is fairly average, you now need to make an additional $10,000 per year just to qualify for the same mortgage that you could have got last year.
Moreover, if a person has 20% down they can obtain a 30 year mortgage and qualify at the 2.79% rate which means they only need $50,000 per year in income. This is a $15,000 difference from scenario #1 above. So essentially the government has said that if you have a smaller down payment we are going to make it much harder for you to qualify for a mortgage than the person who has already owned a home in this rising market or has access to the 20% down through other means. All this while the market has increased substantially in major cities making it very difficult for the average person to get a foothold in the housing market.
This is just some food for thought and if these new rules have hampered yourself or someone you know it may be worthwhile to bring it to the attention of your local MLA so they can raise it with the government in hopes of changes down the road.
If you have any questions regarding your own personal situation please contact our office.
For more information on our mortgage products please visit our website at www.ymscanada.ca