***PLEASE READ, MAJOR CHANGE TO MORTGAGES***
Yesterday (October 3, 2016) the bank of Canada announced that as of October 18, 2016, any insured mortgage applications (less than 20% down payment) must be qualified at the benchmark rate (today’s benchmark rate is 4.64%) for mortgage approval. Currently, only variable mortgages, as well as any term shorter than 5 years are qualified at the benchmark rate while any mortgage 5 year or greater is qualified at the contract rate (actual mortgage rate the lender charges).
What does this mean for you:
If you are currently pre-approved with less than a 20% down payment & are looking to purchase close to your maximum qualifying ability based off the 5 year rate, you will need to submit an accepted purchase agreement to your lender(s) no later than October 17th 2016 to qualify.
If you are pre-approved with less than a 20% down payment and do not have an accepted offer by October 17, 2016, the pre-approval will need to be adjusted based off of 4.64%. This will most likely result in being approved at a lesser amount.
As an example, I will run some numbers:
Today: a household income with $70,000 would qualify for a purchase price of $450,000 with a 5% down payment ($22,400) at a 5 year fixed rate of 2.39%
October 18th: That same household would qualify for a purchase of $360,000 with a 5% down payment ($18,000) at the Bank of Canada benchmark rate of 4.64%.
In summary: If you have less than a 20% down payment on your future home purchase, you will qualify for 20% less of a mortgage.