Mortgage Qualification Policy Change, Explained

18 October 2016
Life and the City
Courtesy of Joanna Lang, Mortgage Advisor with The Lang Team
The Minister of Finance announced a major mortgage policy change that came into effect on October 17th.  While their press release was vague [click here], we understand the changes to be as follows:

Mortgage Qualification Policy Change:   Currently, if you select a 5-year fixed mortgage term, you would qualify based on your actual monthly mortgage payment (i.e., calculated on 5-year fixed rates in the low to mid 2% range).  Going forward, while your actual mortgage payment would still be based on your contract rate, you would need to qualify using a much higher monthly mortgage payment based on the Bank of Canada "stress-test" Benchmark Rate (currently 4.64%) -- resulting in a significantly reduced maximum purchase price (refer to impact section below).

Implementation Dates: This change became effective on October 17th for all those with less than 20% down. We are awaiting additional details, but the change may also impact those with greater than 20% down given the banks/lenders use of portfolio insurance.  If that is indeed the case, it is expected that change may be implemented on November 30th.

Impact:  While every case is different, we have included a sample max purchase price impact calculation for a 10% down buyer.  Please contact us if you would like us to run the numbers for any specific scenario:

Impact Example (Max Affordability):
Total household salaried income = $120,000
Down payment available = 10%
Mortgage Product Chosen = 5-year Fixed
Purchase Style / Location = Freehold / Toronto
Debts = limited debts (i.e., credit card, car, etc.)
Previous Max Purchase Price = Approx. $800,000*
Max Purchase Price As Of Oct 17th = Approx. $640,000*
(Note: the above is for illustration only. Please contact Joanna to discuss in more detail)

Media Coverage:  While additional details are expected to be published throughout the week, we have included a few relevant articles that came out in the media yesterday.  We have also reached out the Department of Finance, lenders, and mortgage insurers directly and will pass along any relevant information as/when received.

Contact Joanna: