This week the federal government announced changes to how high ratio mortgages are approved in Canada. Basically they announced that 5 year, high ratio mortgages, that previously used market interest rates for buyer to qualify would now have to use the Bank of Canada Posted 5-year fixed rate. The bank of Canada rate is currently running about 2.35% higher than the market rate.
This is a direct hit to the young buyer in Canada. It is estimated that on average buyer who has less than 20% down payment will now qualify for a home that is about 20 – 25% less. As an example a client who would have previously qualified for a mortgage on a home of $370,000 would now only be qualified to buy a home for $280,000. In Calgary these are obviously much different types of homes.
Another hit will be to the investor in Real Estate and people looking to refinance their home equity. The federal government have made rules that will affect these mortgages no matter the percentage of the equity of the home the loan was based on. Typically banks resell their mortgages and use mortgage insurers like CMHC to guarantee that the mortgages are good. The government will no longer allow refinancing mortgages, investment property mortgages, mortgages over $1,000,000 and mortgages with over 25 year amortization to be insured. This will force mortgage companies to keep these on their books and will likely add costs to these mortgages. Which will in turn be passed onto the borrower in higher interest rates or fees.
This week the price of oil rose to over $50 for the first time in quite some time. We are still seeing interest in single family homes with supply in line and prices holding their own. I would like to say that we are turning the corner but I am not sure how these federal policies aimed at the overheated Toronto and Vancouver market will counter act our green shoots. We will have to wait and see.
If you are planning on buying a home and would like to discuss your mortgage options please feel free to contact our mortgage representatives Jason Dodd with Verico-Maximum Mortgages or Geoff Cook with First Calgary Financial. Of course Your Calgary Connection Team is ready to discuss these changes in detail with you and formulate a plan on how to deal with these changes in our market place.