A quick update on the new government changes coming down the pipe pertaining to the mortgage financing industry.
First of mortgage rates are NOT increasing. The noise out there right now is around the new mortgage financing rules being implemented by the Government/CMHC with respect to mortgage financing and the qualifying/approval process. We have over the past two years experienced a real tightening up on the mortgage qualifying process to try and slow down the market (more so the property value appreciation). The government has announced more guidelines as of mid October, which will in my view definitely have a further effect on the qualifying process and make it harder for borrowers to afford the higher home values.
There is no mortgage rate hike on the horizon which is the actual reason why the rules are being modified. Usually interest rates moving up and down correct the market when it gets too hot or too cold. The government have not been able to raise interest rates because of the sluggish global economy so they have taken these measures instead.
We are still a little vague on the overall changes but one big change that we are clear on is the new qualifying rate used to qualify high ratio mortgages (mortgage with less then 20% down payment) will now be at 4.64%. To further explain typically when a client chooses a 5 year fixed rate at 2.44% (the contract rate) this is the rate used to see how much a borrower can carry on their mortgage. With the new rule change we will be using a posted rate which is currently 4.64% instead of the 2.44% rate. The client will still receive the rate of 2.44% but in order to qualify for the mortgage we will use the posted rate instead. Naturally because of the higher qualifying rate being used this will reduce the amount of mortgage the borrower can now afford. For example it can have a $50,000 to $150,000 swing in borrowing power depending on the property value which makes a huge difference.
I will keep you posted on further updates.