Thinking of buying a home in 2018? There are some changes for home buyers in Canada as we move into the New Year, particularly with mortgage rates and qualifications. Buying a home in 2018 will be much different than buying a home in 2017 with new mortgage qualifications around the mortgage stress test and home affordability.
As of January 1, all new Canadian home buyers, or any homeowner who chooses to refinance or anyone who must renew their mortgage with a new lender, will have to qualify for the posted five-year fixed rate, not the discounted five-year fixed rate. Historically, the posted rate is about 200 basis points higher than the discounted rate (otherwise known as the lender’s advertised rates).
Prior to 2018, anyone with more than 20% equity in a property could avoid this mortgage stress-test, which requires lenders to qualify the borrower based on posted rates. That meant a homeowner with more than $100,000 equity in a $500,000 home could qualify for a mortgage based on the 2.85% mortgage rate term offered by their lender. Now, however, that same homeowner would have to qualify for the same mortgage but based on a 4.85% posted rate. This doesn’t mean that borrowers are required to pay the monthly mortgage payment that comes with the higher rate, it just means that on paper they need to show that they can pay that higher monthly rate.
To appreciate the big bite this new mortgage stress-test will take out of your house-buying budget, here’s a quick rundown with a home buying in 2018 vs. 2017 infographic: