New mortgage rules: Hit or miss?

Fears that new mortgage rules introduced by the federal government could make it more difficult for borrowers to secure a mortgage are becoming a reality.

As predicted by reporters and real estate experts, the new mortgage rules introduced by the federal government in October 2016 are indeed making it difficult for some borrowers to obtain financing.

The new mortgage rules

• A mortgage rate stress test is mandatory for all insured mortgages
• New restrictions on providing insurance for low-ratio mortgages
• Reporting rules for the primary residence capital gains exemption
• Consultations on lender risk sharing by the federal government

The federal government put these new rules in effect in the interest of protecting the public and economy from the potentially dangerous practice of high interest or high-risk borrowing.

The mortgage rate stress test, as predicted, has not made a significant dent in the number of first-time home owners able to qualify for a mortgage. Uninsured mortgages tend to be less risky, as owners prove their access to capital through their down payment.

That said, the rules put in place to protect, leave some people just short of qualifying under new regulations. These aspiring home owners may find themselves turning to alternative lenders in the absence of traditional funding because they are able to take loans at seven and eight per cent interest.

While I’m a fan of alternative lending in the right instances, it’s simply a shame that clients with immaculate credit may end up borrowing at these rates.

Meanwhile, Finance Minister Bill Morneau remains positive about the overall effect the new rules are having for Canadians:

“A decline in the share of new insured loans issued to highly-indebted borrowers suggests that the quality of credit is improving in the high-ratio mortgage market. This development helps to ensure that Canadians are taking on mortgages that they can afford.”

Clinton’s takeaway:

It’s clear that something had to be done to protect the Canadian housing market. It still remains to be seen if the new rules are that something.

If you’re concerned about how the new mortgage rules may limit your current or future homeownership decisions, now’s the chance to get in touch with an unbiased mortgage broker to explore your options.

Furthermore, my door is always open.

With Love,

Clinton