This is just a heads up to anyone who is planning on purchasing a property in the next 3 months. Starting Nov 1, the new rule states that qualifying rates for your mortgage will be based on the 5 year posted rate (today 5.24%), instead of the discounted 5 year rate (today 3.09%).
Surprise! Many lenders and mortgage brokers will tell you that the new rules have been in practice for a number of months already. Depending on the overall picture of an applicant, Genworth and CMHC will already be basing the qualifying rate on the overall financial strength of the customer. Even if the 5 year rate offer is 3.09%, the banks will calculate what would happen if the rate was 4%. That way, when the mortgage comes up for renewal, there should still be a cushion.
You would still get the discounted rate when you sign for your mortgage, but qualifying for that mortgage will be more difficult in the future, because you need to qualify using the higher rate.
The bank's regulators (OSFI) are trying to curb future losses caused by the inevitability of interest rate increases in the future.
That being said, if you were planning to buy a home and you qualify for a certain amount of mortgage, after October 31st 2012, that amount will be less.
As an example, to qualify for a $300,000 mortgage under the current rules the rate is the discounted 3.09% and the payment is $1433.63 and this is the payment you would qualify on your mortgage application. After October 31st, your $300,000 mortgage qualifying rate is the posted 5.24% and your qualifying payment would now be $1786.03 ($350.00 higher). You still get the lower rate on the actual mortgage, but to qualify for that rate you need to apply at the higher rate. This is the way the banks have been qualifying variable rate mortgage plans, since May of this year.
There have been many mortgage rule changes this year alone. It is important to note that if you have been pre-approved or pre-qualified by your lender before Nov 1, 2012, you will likely have up to 90 days since the date you were put into the banks system to take advantage of qualifying the original way.
If you are unsure if you have been pre-approved or pre-qualified by your lender and are planning to purchase within the next 90 days, it is impeccable you contact your lender immediately to ensure your purchasing power remains the same.
Also, if you require any contacts from me, please don’t hesitate to ask me asap! I hope this blog helps!
Until next time,