Buyers NOW Face Mortgage Qualifying Restrictions When Purchasing Toronto Real Estate
As of Monday April 19, buyers of Toronto houses or condominiums will be faced with restrictions on the amount of money they may borrow.
Federal government lending guidelines dictate that purchasers who would like to have an adjustable rate mortgage OR any term shorter than five years (and be putting a down payment of less than 20% of the purchase price) MUST use the Bank of Canada mandated benchmark rate when getting qualified for their mortgage.
That rate currently is 5.85% and this will vary, perhaps weekly or monthly as the bond market moves.
Buyers will now qualify for lower mortgage amounts!
However if as a Toronto home buyer you’re happy taking a 5-year fixed mortgage regardless of the size of your down payment (currently available at a ‘discounted rate’ of approx 4.4% say), then the banks and mortgage lenders are allowed to take that rate and use it to qualify you.
Why are they doing this? Actually it’s good, prudent country-wide policy to forestall any Canadian mortgage borrowers from getting into trouble in the next couple of years when interest rates do rise. The government feels that if they disuade you from taking a variable or a short-term mortgage at the present ultra-low interest rates, or at least force you to qualify income-wise based on a higher rate, then they’re protecting you from future rate hikes.
Here’s the current mentality. It’s not IF interest rates will rise. It’s WHEN will they rise and by HOW MUCH.
So what’s the net effect of this? Let’s look at an example.
With a combined income of $100,000 for either a couple or a single person, under the new system (which would allow them to choose between a variable or a 1-, 2-, 3- or 4-year mortgage term), a Toronto condo or house buyer would qualify for a maximum mortgage of $368,000 @ 25-year amortization and $418,000 with a 35-year amortization.
With that same income but taking the 5-year fixed mortgage now at 4.49%, they would qualify for a maximum mortgage of $421,000 @ 25-year amortization and $495,000 with a 35-year amortization.
Thus a buyer would be limited to purchasing a Toronto home for $53,000 less when using a 25-year mortgage amortization and for $77,000 less if using a 35-year amortization IF they wanted the variable or ’shorter-than-5-year’ mortgage option and they had less than 20% down payment.
Let’s meet to discuss your mortgage and home buying options over a cup of coffee.
Buyers NOW Face Mortgage Qualifying Restrictions When Purchasing Toronto Real Estate is a post from: Toronto Real Estate Updates