While every life is different, almost everyone aims to own their own home at some point in their lives. Once on the property ladder, you may move to progressively larger homes (as your family grows) or to another city for work or you might decide to rent your home and go travelling.
Whether you’re aiming to join the property ladder, move up it or change your place on it, it’s important to keep abreast of the most recent changes in the prevailing law. We’ve detailed the two most recent changes to Canadian mortgage rules below and explained what they might mean for you.
Perhaps the most notable change to the process has been the introduction of stress testing as part of the mortgage process. This new procedure is designed to settle the property market by limiting the amount that Canadians can borrow. It’s working.
The Canadian Real Estate agent Association says that home sales in 2019 are expected to reach their lowest levels for a decade and the rule change has hit new buyers hardest who, on average, can afford 20% less than their predecessors as a result of the new legislation. Different areas, however, have been affected differently. While sales have fallen in Alberta and British Columbia, they have grown in places like Ontario and Quebec.
If you’re looking to join the property ladder in 2020, one of the key steps to getting yourself up to speed on the prevailing rules is to understand both when stress-testing will apply and how it is conducted. Either using the five-year Bank of Canada Benchmark rate or 200 basis points greater than the mortgage’s contractual rate measure. Whichever measure is larger, is the one used.
Down Payments Going Up
In addition to stress testing being brought in for 2019 there were also changes made to the minimum down payment thresholds for properties of different values.
The revised rules require a minimum downpayment of 5% for a property valued at up to $500,000, rising to 10% for properties up to a million and settling at a 20% flat fee for any property valued in excess of a million dollars.
Where stress testing has a greater effect on first-time buyers, down payment thresholds impact more on people moving further up the property ladder as they will be required to find larger sums of available cash as they move to properties of greater value.
Its impact on first-time buyers is likely to be more tangental; an increase in the amount of time they rent for in order to save more for that initial payment or an increase in those relying on mortgage loan insurance. Mortgage loan insurance is set up to protect the lender in the event that you are unable to make your monthly repayments. Premiums for this type of insurance vary based on the value of the home you are buying and how much of the down payment you can manage.
If you can’t make the minimum down payment take time to factor in the need for mortgage loan insurance into your budgeting, and like with any other financial product, shop around to see what rates are available to you.
Keeping to the Rules
These rules changes have had a notable effect on how Canadians manage their property purchases. Even if you are on your second or third mortgage application or property purchase, procedures such as stress testing can still appear complex.
The experts at Canadlend.com are experienced when it comes to helping new and repeat borrowers with their mortgage products. Staying abreast of the changes in the law and how they affect borrowers means they can help you understand the process. Their access to hundreds of lenders and their products means that once they’ve helped you develop your financial plan they can connect you with the best product to execute that plan.
To find out more, contact Canadalend.com today and find out how you can take your first or next step on the property ladder.