Canada's New Mortgage Rules
Your Guide to Understanding the Changes, and How they’ll Affect Home Buyers in 2020.
You may have heard the Government is changing the mortgage stress test, making it easier for borrowers to qualify for a loan.
Under the current (“old”) rules, home buyers with a down payment of less than 20% are subject to a stress test that determines whether they can afford their principal + interest payments should interest rates increase.
This stress test uses the Bank of Canada 5-year Benchmark posted rate plus 2%.
Under the new rules, the Minister of Finance will change the benchmark rate used to determine the minimum qualifying rate.
The new benchmark rate will be:
The weekly Median 5-year fixed rate as calculated by the Bank of Canada plus a 2% buffer.
This “benchmark rate” will be published every Wednesday and come into effect the following Monday.
So what exactly does this mean?
The new benchmark rate will be more consistent with the actual mortgage rates offered by lenders.
In plain language, it means that the way lenders approve clients for an insured mortgage will use a rate that more accurately reflects the rate being offered by them (vs. the 5.19% Bank of Canada rate).
Lenders can now use their contract rate plus 2%, or the new weekly median five-year fixed rate plus to 2% to qualify home buyers. This should result in a better qualifying rate, and increase affordability for the borrower.
The new Benchmark Rate will come into force on April 6, 2020.
~Written by Deanna Allegranza
*source: Government of Canada News, “A New Benchmark Rate for Insured Mortgages”