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New Mortgage Rules January 1, 2018

Matthew Jackson Mortgage Tips

There are some substantial changes arriving on January 1, 2018 that will make it more difficult for anyone looking to purchase or refinance their property with 20% or more down payment or equity.
FICOM is implementing a rule change that make it so when anyone in Canada looking for financing at 20% and above equity would need to qualify under a stress test of 2% above the rate they are receiving or the benchmark rate, whichever is higher.
What this effectively does is lower what a client may qualify for by about 20% – 30% depending on their income and debt levels.

For example if someone where to have the following scenario this is what would change come January 1, 2018.
Using the following:
3.34% 5 year fixed rate, 30 year amortization
$65,000 annual income
20% down payment
**Would qualify for approximately $510,000 purchase price under existing rules**

Come January 1, 2018:
2.99% 2 year fixed rate, 30 year amortization (Have to use 4.99% or 2% above contract rate, whichever is higher. So using a shorter term I will illustrate using the “Benchmark rate” for qualifying purposes.)
$65,000 annual income
20% down payment
**Would qualify for approximately $420,000 purchase price under new rules.**

Options to qualify at a higher amount would be getting a cosigner, having a suite in the property or coming up with a higher down payment. These were already options before but were not needed as much in these scenarios.

Please note that Credit Unions are not bound by these new rules yet but depending on how much business they take on they may decide to adopt the rules or raise their rates.

I hope this helps and feel free to contact us anytime with questions.

Matthew Jackson
Mortgage Professional

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