There is not a lot of time left. New home buyers may want to consider getting a pre-approval before the new rules come into effect on January 1, 2018. Some lenders have already implemented the new rules, which includes a stress test, that will affect homebuyers with down payments of 20% or more.
Armed with a pre-approval, you may be able to purchase a home before the expiry date -- usually 120 days -- and won't be affected by the new rules.
Many buyers are getting ahead of the new year. According to statistics released on December 14 by The Canadian Real Estate Association (CREA), national home sales rose strongly in November 2017.
- National home sales rose 3.9% from October to November.
- The number of newly listed homes climbed 3.5% from October to November.
- The MLS® Home Price Index (HPI) was up 9.3% year-over-year (year-over-year) in November 2017.
- The national average sale price edged up 2.9% year-over-year in November.
Home sales via Canadian MLS® Systems rose for the fourth month in a row in November 2017, up 3.9% from October. Led by a 16% jump in sales in the Greater Toronto Area (GTA), the surge in sales there accounted for more than two-thirds of the national increase. The continuing rebound put November sales activity a little over halfway between the peak recorded in March 2017 and the low reached in July.
"Some home buyers with more than a twenty percent down payment may be fast-tracking their purchase decision in order to beat the tougher mortgage qualifications test coming into effect next year," said CREA President Andrew Peck.
"National sales momentum remains positive heading toward year-end," said Gregory Klump, CREA's Chief Economist. "It remains to be seen whether stronger momentum now will mean weaker activity early next year once new mortgage regulations take effect beginning on New Year's day."
The new rules apply to federally regulated financial institutions, not credit unions or private lenders. Yet.
This is a mortgage transaction where the default insurance premium is paid by the client, as is typical in a high-ratio mortgage, meaning with less than 20% down.
This type of mortgage can now be considered the new "insured mortgage". These are still eligible for default insurance but is portfolio-insured at the lender's expense or high-ratio insured at the client's expense. There are tougher rules as well -- the maximum amortization is 25 years, applicants must qualify at the Benchmark rate and property must be valued at less than $1M. Property must also be owner-occupied.
These mortgages are not eligible for default insurance and apply to refinances, rental properties, stated income, and on purchases greater than $1M.
All uninsured mortgages are subject to a new qualifying rate, as of January 1, 2018, or stress test. This rate is the Bank of Canada's five-year rate, currently at 4.99%, or the lender's contract rate plus 2% -- whichever is greater. Your mortgage payment will still be based on the contractual mortgage rate but the higher rate will be used for qualifying purposes.
Which mortgage is best for me?
That depends. Every situation is unique. There are pros and cons for each of the three types of mortgages, depending on your financial goals. For example, sometimes the spread between the insurable and un-insurable rate is significantly large enough to justify the borrower paying high-ratio mortgage insurance to obtain the lower rate.
A mortgage professional can explain the differences and give you the best advice and get you best interest rate.
So, start with a pre-approval. Call your TMG mortgage professional today.