New mortgage rules that may affect you


Canadians applying for a mortgage that requires CMHC insurance will have to qualify under higher interest rates under a new “stress test” announced October 3 by federal finance minister Bill Morneau.

The tougher mortgage rules were announced as part of a wider series of "preventative measures" aimed at “ensuring the long-term stability of the market” and reducing risk, according to Morneau.

Under the proposed new mortgage qualification rules, the current “stress test” that currently applies to some insured, variable-rate mortgages and insured mortgages with terms of less than five years will be applied to all new applications for insured mortgages, as of October 17.

The stress test requires that, even if an applicant can achieve a discounted mortgage rate of 2.79 per cent, for example, they will have to qualify as if they would have to pay the full Bank of Canada posted rate, currently 4.64 per cent.

This new measure will now include all new applicants for insured, fixed-rate mortgages with terms of five years and more, who previously only had to qualify under the discounted interest rate they would actually be paying – which had typically allowed those applicants to qualify for much larger loans than will be possible under the new proposal.

Homeowners that have an existing insured mortgage or those renewing existing insured mortgages will not be affected by this measure. Applicants for uninsured mortgages (those with a down payment of more than 20 per cent) are also not affected.

Mortgage expert Alisa Aragon, a broker with Dominion Lending Centres Mountain View, told REW.ca, “This new measure is going to take so many people out of the market, especially in Vancouver with our high home prices. A lot of people have less than 20 per cent down payment, and a lot of them don’t go for variable or short-term rates because they don’t qualify under the stress test, so they go for fixed-term rates which allows them to qualify under the discounted contract rate. Now if they have to qualify under the posted rate, they will qualify for a much lower mortgage and that could take them out of the market.

“I have a couple that is looking at homes around $630,000 and I have them qualified at the five-year contract rate. Now with the new rules coming into effect, they are going to qualify for a property of $504,000. That is a huge difference and that could mean the difference between buying a house or a condo.”