What is the maximum mortgage amount one now qualifies for with the rules that came into effect on October 17th?
Short answer: LESS. A minimum of 20% less, in fact.
Before October 17th, the lenders calculated the maximum mortgage amount based on the contract rate of 2.49%, but now it is based on the Bank of Canada benchmark rate of 4.64%
Here are three random scenarios that I have created to outline borrowers’ qualifying power before and after the change. Note they are all based on 25-year amortization, the new qualifying interest rate (5-year Bank of Canada benchmark, currently 4.64%) as well as a GOOD credit score of 680 or greater. The first two are based on 5% down; the third is based on a 20% down payment, which does not require mortgage insurance.
Scenario #1 – young professional
Gross Household Income $75,000
Monthly Expenses $450 (car loan and student loan)
Monthly Strata & Property Tax $484
Maximum Purchase Price Now $370,000 ($18,500 down payment)
Before Rule Change $435,000
Scenario #2 – young professional couple
Gross Household Income $140,000
Monthly Expenses $1,230 (car & personal loans, unsecured LOC, credit card)
Monthly Strata & Property Tax $584
Maximum Purchase Price Now $725,000 ($47,500 down payment)
Before Rule Change $840,000
Scenario #2 – established Gen-X with a family
Gross Household Income $180,000
Monthly Expenses $2,300 (car & personal loans, credit card)
Monthly Property Tax $417
Maximum Purchase Price $960,000 ($71,000 down payment required)
(Mortgage amounts over $999,999 are not eligible for default insurance. Therefore one would be required to apply a 20% down payment.)
This is just a quick and dirty summary of three simple scenarios. Now more than ever, we as mortgage consumers need to get pre-qualified before making any real estate-based decisions. The average cost to buy a single-family detached home in my area is $1,175,000, townhouses are approximately $535,000, followed by condos priced around $377,000.
My suggestion, and the first thing that one should do if you are looking to re-finance or purchase a new home, is to contact your trusted Dominion Lending Centres mortgage broker to find out exactly how much you qualify for.
Don’t get caught up in the emotional experience of buying a new home. Make sure you treat it like any other business decision: the numbers need to make sense first, then you need to figure which parts of your WANT and NEED list you can live with and live without.
For more details on changes to the mortgage rules, please read DLC’s “Chance of Space: New Mortgage Rules” guide by CLICKING HERE.
written by: MICHAEL HALLETT