Don’t wait to buy a home in 2018 – Here’s Why!
Act now! If you’ve been planning to buy a home, do it before January 1, 2018. A recent article in McLean’s Magazine by Jonathan Hayward sheds some light on what it means should you wait to buy that home in the new year.
If you’re not already aware of the latest announcement made by The Office of the Superintendent of Financial Institutions (OSFI), here’s what you need to know about obtaining a mortgage in 2018:
- Regardless of the interest rate you qualify for at the time of signing for your mortgage, you will have to pass a “stress-test” no matter what, even for uninsured mortgages (which applies to consumers putting 20% down or more). If you qualify at 2.9%, you have to be able to also carry the mortgage should the rates rise to the Bank of Canada’s posted 5-year rate which is normally about 2% higher than your negotiated rate - which in this case would be around 4.9%. Therefore, you would not qualify if affordability becomes an issue at the higher “stress-test” rate.
- The “stress-test” essentially means that all homebuyers must qualify for mortgage loans at the higher of the Bank of Canada’s five-year benchmark rate (currently 4.89%) or the mortgage rate offered by their lender plus 2% points. Whichever rate is higher at the time, lenders will use.
- “The effect of the changes will be huge, resulting in a 20% decrease in affordability, meaning a first-time homebuyer will be able to buy 20% less house”, explains James Laird, co-founder of Ratehub.ca.
In the event that a home buyer does not pass the stress test, they will have 3 options.
- They have to put more money down.
- They have to purchase a smaller home or none at all.
- They have to seek out a co-signer whose income would be added as well.
So, what does this mean for you? Any mortgage transactions completed after January 1, 2018 will be affected by the new rules. The test also takes into account that the mortgage payments, taxes, utilities, etc... total no more than 39% of your monthly income. Once you pass the test, you will not have to be reviewed when the mortgage comes up for renewal, providing you stay with the same lender.
Other things to consider:
Note that as of November 2017, mortgage insurance has more strict rules as well.
- Mortgage amortization must be 25 years or less.
- Value of the home must be under 1 million.
- The owner must be the primary resident of the home.
- Buyer of the home must have credit score of 600 or higher.
In light of these new rules, you may want to purchase your new home sooner to avoid these challenges and possible road blocks before they come into effect on January 1, 2018.