{"id":240,"date":"2016-10-12T17:23:13","date_gmt":"2016-10-12T17:23:13","guid":{"rendered":"https:\/\/www.realestateleads.ca\/blog\/?p=240"},"modified":"2023-09-27T15:00:58","modified_gmt":"2023-09-27T15:00:58","slug":"how-the-new-housing-rules-are-affecting-the-purchasing-power-of-your-clients","status":"publish","type":"post","link":"https:\/\/www.realestateleads.ca\/blog\/how-the-new-housing-rules-are-affecting-the-purchasing-power-of-your-clients\/","title":{"rendered":"How the New Housing Rules are Affecting the Purchasing Power of your Clients"},"content":{"rendered":"
<\/div>

\"realestateleadsdotca_canadianhomes\"<\/a><\/p>\n

How much house can your client afford? It looks like less under new rules unveiled earlier this week by the federal Liberal government.<\/p>\n

On Oct. 17, all insured new homebuyers must \u201cstress test\u201d their ability to carry their mortgage payments. This is based on whichever is greater: the negotiated rate in their mortgage contract -or- the Bank of Canada\u2019s five-year fixed rate.<\/p>\n

Currently BoC\u2019s posted rate is about 4.6% \u2013 about two points greater than many discounted rates.
\nThe purpose of mortgage insurance is to protect lenders in the event of default. As mortgage insurance is required when homebuyers make a down payment of less than 20% of the home\u2019s purchase price.<\/p>\n

The expanded \u201cstress tests\u201d will aim to ensure that home buyers could still afford their mortgage payments if interest rates climb higher.<\/p>\n

RateHub.ca, an online personal-finance resource, published calculations as to what buyers at 3 different income levels should be now able to afford under the new and outgoing rules.<\/p>\n

For each scenario, certain assumptions have been made:<\/p>\n

* Each buyer has saved $40,000 for the down payment.<\/p>\n

* Under the outgoing rules, calculations are based on a five-year fixed mortgage rate of 2.17 per cent amortized over 25 years<\/p>\n

* Under the new rules, calculations are based on a five-year fixed mortgage rate of 4.6% (the Bank of Canada\u2019s posted rate) amortized over 25 years<\/p>\n

* Monthly property taxes of $400 and monthly heating costs of $200<\/p>\n

Scenario No. 1<\/strong><\/em><\/h3>\n

Annual household income (pretax): $50,000
\nThe maximum purchase price this buyer can qualify for:
\n\u00b7 Outgoing rules: $277,434
\n\u00b7 New rules: $222,617<\/p>\n

Scenario No. 2<\/em><\/strong><\/h3>\n

Annual household income (pretax): $100,000
\nThe maximum purchase price this buyer can qualify for:
\n\u00b7 Outgoing rules: $650,000
\n\u00b7 New rules: $512,133
\nUnder the soon-to-expire rules, this buyer\u2019s maximum purchase price is dictated by the minimum down payment that\u2019s required.<\/p>\n

Federal rules stipulate that home buyers must put down at least five per cent on the first $500,000 of the home\u2019s purchase price and 10 per cent on the remaining balance. (Homes priced at $1-million and up require a 20-per-cent down payment.)<\/p>\n

Thus, with $40,000 saved up, under the current rules, this buyer can put down the minimum on a $650,000 home, and earns enough to afford the subsequent mortgage payments and other housing costs.
\nBut when asked to qualify at a steeper mortgage rate, this buyer\u2019s spending power is diminished by nearly $140,000.<\/p>\n

Scenario No. 3<\/strong><\/em><\/h3>\n

Annual household income (pretax): $150,000
\nThe maximum purchase price this buyer can qualify for:
\n\u00b7 Outgoing rules: $650,000
\n\u00b7 New rules: $650,000<\/p>\n

In this scenario, the buyer is not affected by the new rules. What the buyer can afford is limited by down-payment rules, rather than the debt-to-service ratio.<\/p>\n

Instead, let\u2019s assume the buyer has $80,000 for the down payment.<\/p>\n

The maximum purchase price this buyer can qualify for:
\n\u00b7 Outgoing rules: $999,999
\n\u00b7 New rules: $841,649<\/p>\n

Notes: These calculations do not take monthly condo fees into account, which would reduce affordability. Nor do they account for other debt obligations that home buyers may have.<\/p>\n

Mortgage changes to impact investors<\/p>\n

There are now fewer options for rental properties.<\/p>\n

In the wake of new mortgage rules, some mortgage lenders are pulling mortgage programs for rentals.<\/p>\n

One of the first was Merix\/Lendwise, which announced a change to its offering Tuesday \u2013 a day after recent housing rules were put into place.<\/p>\n

In a note to brokers, the lender said it would no longer be accepting rental applications.<\/p>\n

First National, another major lender, has made similar changes to its offering.<\/p>\n

\u201c(First National) have temporarily suspended their conventional rental program and their Alt-A program, which is part of the business for self-program,\u201d Ernie Stapleton, a representative for First National, told CREW. \u201cAs the dust settles, I think First National will re-evaluate their programs in the context of the new rules to see what can be offered.\u201d<\/p>\n

And it isn\u2019t just rental properties that are being impacted.<\/p>\n

Another lender, MCAP, will soon charge a 15 basis point surcharge for all new refinances beginning November 30, 2016.<\/p>\n

These sorts of lender updates are the result of the government\u2019s recent changes to low-ratio mortgage insurance requirements.<\/p>\n

Effective November 30, all mortgages originated by lenders who use portfolio insurance \u2013 which includes all monoline lenders \u2013 must meet the following criteria:
\n\u00b7 Maximum amortization of 25 years
\n\u00b7 Maximum property price below $1 million
\n\u00b7 A property must be owner occupied<\/p>\n

The full scope of the changes can be viewed online here<\/a>.<\/p>\n

Questions about about RealEstateLeads.ca? Please see our Real Estate Leads FAQ<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

How much house can your client afford? It looks like less under new rules unveiled earlier this week by the federal Liberal government. On Oct. 17, all insured new homebuyers must \u201cstress test\u201d their ability to carry their mortgage payments. This is based on whichever is greater: the negotiated rate in their mortgage contract -or- […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[67,68],"class_list":["post-240","post","type-post","status-publish","format-standard","hentry","category-general-topics","tag-new-housing-rules","tag-purchasing-power"],"yoast_head":"\nHow the New Housing Rules are Affecting the Purchasing Power of your Clients - Real Estate Leads Blog<\/title>\n<meta name=\"description\" content=\"How the New Housing Rules are Affecting the Purchasing Power of your Clients - Real Estate Leads Blog\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.realestateleads.ca\/blog\/how-the-new-housing-rules-are-affecting-the-purchasing-power-of-your-clients\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How the New Housing Rules are Affecting the Purchasing Power of your Clients - 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