Posted by: Daryl & Wendy Ashby | March 18, 2010

Government Changes to Mortgage Qualifications

  On February 16, 2010, the Government of Canada announced a series of regulatory changes to support the long-term stability of Canada’s housing market.  The Government has now provided the following details in relation to these changes.

Effective April 19, 2010, Qualifying Interest Rates guidelines will change as follows: 

  • HELOCs, and Fixed Rate Mortgages of terms less than 5 years and all Variable Interest Rate Mortgages: Applications will be adjudicated based on the greater of the 5 Year Bank of Canada Benchmark Rate**, OR the actual customer rate (inclusive of any customer discretion). 

Fixed Rate Mortgages of terms 5 years or greater: Applications will be adjudicated based on the actual customer rate (inclusive of any customer discretion). 

  • This change applies to both conventional and insured mortgages. 

What does this mean to you and your purchaser?

1. If your purchaser is taking a five year fixed rate and term or longer,  they would have to qualify at the ‘actual or discounted rate’  the lender is charging.   Current (March 16, 2010) five year fixed rates are in the 3.75 –  3.85% range, so the purchaser would qualify in that rate spread.

2. If your purchaser is taking a term of less than five years;   a variable rate mortgage or a secured line of credit mortgage  (Heloc),  they would have to qualify for the mortgage using the ‘posted’ rate for the five chartered banks which is published on the Bank of Canada website.

   The current ‘posted’ rate for the five year fixed rate and term is 5.39%,  so any client taking a term of less than five years would have to qualify using a rate of 5.39%. 

What difference does this make to my purchaser’s buying power?

A:   Based on an income of $80,000.00 per annum and minimal debts a buyer could qualify for a mortgage of approx. $480,000.00 based on a five year fixed rate of 3.85% and amortized over 35 years.    

If the buyer chooses a term less than five years,  they would qualify for a mortgage of approx. $400,000.00 using a qualifying rate of 5.39%.    So a reduction of $80,000.00 which is a significant change. 

It means most people trying to maximize their purchase will now be leaning to a five year fixed rate and term

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