Canada’s New Mortgage Rule: Gloomy or Good?
Cool your jets, people. The world is not coming to an end!
If you’ve been watching the news, you’ve likely heard about Canada’s new mortgage rules. You know, the change that has doomed real estate as we know it? (I kid). The media has had great fun stirring up panic and fear about these changes, and we thought it was time to shed some objective light on what these changes mean in the world of real estate….
In a nutshell, high ratio mortgages (meaning less than 20% of the purchase is part of the down payment) will now be subject to a ‘stress test’ so-to-speak … meaning that a Buyer will be required to be approved using a metric that ensures affordability should and when interest rates increase in the future. Simply put, it means that safeguards will be in place to ensure a Buyer cannot overextend him or herself if they’re required to refinance when rates aren’t as ridiculously low as they currently are.
Worth noting: Buyers won’t be forced to pay this higher interest now – they’ll still have access to all the fantastic rates and mortgage products currently available.
Is this such a terrible idea? How would you feel about putting yourself in the position of being unable to make your mortgage payment or being forced to sell your home if rates go up in the future? The government is encouraging responsible spending, folks, as well as ensuring that Buyers don’t wind themselves up in trouble down the road.
Yes – it does change the numbers… a Buyer who may have been preapproved for 300K under the old rules may only be eligible for a mortgage of 240K under the new rules, but here’s a question for you: If spending 300K in the first place is stretching Mr. Buyer so thin, should he be spending that in the first place?
Part of our job is to advise our clients about how to make a wise decision regarding their real estate endeavors. This often includes reviewing a budget, and discussing finances. And one of our first remarks often is, ‘the bank will be quick to lend you money… but don’t forget that every cent (and then some!) will need to be repaid!’ It is important to consider lifestyle and other expenses when thinking about how much you’re comfortable spending on a home – if you don’t want to give up your daily starbucks, or vintage cab, it’s a good idea to factor these costs into your bottom line. If you have your heart set on that Caribbean vacation with the family, don’t set yourself up to be house-poor when you can’t afford to pay your mortgage.
So. All the government is doing is helping Canadians be responsible with their spending. All the government is doing is enforcing a new system that we’ve already encouraged our clients to adopt anyway. Mortgages will still be approved, real estate will still happen… for some, it just means you’ll sleep a little easier at night knowing the roof over your head is one you can actually afford!