IF You Have LESS Than 20% Down Payment OR Can Qualify Using The New Stress Test For Lower Rates

By: Thomas Cook

IF You Have LESS Than 20% Down Payment OR Can Qualify Using The New Stress Test For Lower Rates

New Bank of Canada rules that came out in October / November of 2016 changed a lot of details about how large of a mortgage high-ratio borrowers with less than 20% down can be approved for.
 
Look at the right-hand column of the chart here titled “BoC Chart @ 4.64%”.  The Bank of Canada (BoC) has dictated that high-ratio borrowers must qualify at the BoC rate determined by them.
 
As an example, look at the amount you qualify for if you earned $100,000 annually either by yourself or combined with a partner. 
 
If the interest rate was 2.5%, before the fall of 2016 you would have qualified for a mortgage of approximately $520,000 but under the new rules you would only qualify for $462,000.
 
This reduces your available mortgage by $58,000.
 
However, you rarely would end up paying that Bank of Canada rate.
 
Typically, your mortgage broker or banker would offer you a rate that’s considerably less for a 5-year term… often by as much as 2% less and your monthly payments would of course be based on that lower rate.
 
So why did the Bank of Canada do this?  In their view, there is a distinct possibility that interest rates might rise in the coming years. 
 
We have been in a ‘low rate’ situation now for 8-10 years now and odds are that something domestically or globally will cause rates to rise.
 
It’s probably a good thing that they’re preparing for a worst-case scenario and endeavoring to prevent a future implosion in our Canadian real estate market if rates were to rise.

Thomas Cook
Thomas@LivingInToronto.com
647-962-1650


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