Latest Update On The New Mortgage Guidelines

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Latest Update On Mortgage Guidelines

The latest update on mortgage guidelines has felt a bit like the Feds are making it up as they go.  As everyone tries to brace themselves for the latest impact of Federal Government intervention, many experts are predicting this uncertainty will force a market rush as buyers attempt to be approved for more desirable properties and sellers try to sell at a higher market price while they still can.

The fact is no one knows for certain how these changes will impact the market, however we do know these mortgage lending changes will affect low-risk borrowers ~ borrowers with 20% or more down payment and many feel this is going to have a definite impact on the 2018 market.

Here Is What We Know For Sure:

1. The stress-test require low risk buyers must qualify for mortgage the greater of:
   1. 2 percent higher than the actual amount of their mortgage
   2. or 5 year posted Bank of Canada
2. The latest update will take effect January 1, 2018
3. The new mortgage guidelines and stress test rules will apply to mortgage renewals if the borrower changes financial institutions.
4. The new guidelines have been designed to prevent lenders from getting creative and trying to go around the rules, and so the guidelines also apply to co-lending or bundled mortgages.
5. The stress-test is designed to minimize the impact on financial lenders and mortgage defaults if interest rates rise.
6. The idea is to ensure borrowers can afford a rise in interest rates.
7. The purpose of the stress-test is to cool the market in anticipation of a rise in interest rates, however the markets have already experienced a cooling and are now at a more balanced market since the summer.

The Effect the Latest Update on Mortgage Guidelines Will Have On The Market:

1. Buyers will qualify for a lower mortgage amount and therefore buyers will have less money to spend.

What We Don't Know

1. How the stress-test will impact purchase and sale agreements signed before January 1, 2018 who have been pre-approved.
2. Credit Unions and private lenders are not required to apply the stress test if they are uninsured, it is unsure whether they will decide to adopt the same policy
3. Will lengthening the amortization period help offset the effect of the stress test or will the guidelines address this uncertainty
4. Will this added cooling effect of an already balanced market tip the real estate market even further