03/25/2024
Important. Please READ and SHARE. Facebook will not allow us to post the link to the news article but you can google Mortgage Cap Canada.
On March 22nd the Regualtor that determines the mortgage qualification rules for Big banks or called A lenders made a HUGE announcement that is going to impact homebuyer and investors dramatically. This is the biggest change since the STRESS TEST and may make it more difficult to qualify for a mortgage. The change will be effective Q1 2025 and we are still waiting for details, but this is what we understand
As of Q1 2025, there will be a mortgage cap put into place in addition to the Debt to Service ratio calculation, and stress test. The cap will be at 4.5 times the income of the borrowers purchasing the property.
So, what does this potentially look like in real world terms???
Let’s take Sally and her husband John. Together they earn $175,000.00 a year income. Sally and John are perfect because they have NO DEBT besides their current mortgage. No car payments, credit cards, no line of credit and owe nothing to the CRA.
Sally and John have a smaller detached home. They currently have a mortgage of $700,000.00. They want to upgrade to a larger 4 bedroom home so they can grow their family and potentially have their parents live with them if needed in the future. To do this, after their down payment and closing costs they will need a mortgage of $800,000.00. They have 25% down payment and will have an uninsured mortgage.
Effective next year, even though Sally and John make a good income, have perfect credit and no debt the highest mortgage they can be approved for with an A lender (big bank) is 175,000x 4.5 = $787,500.00. If with a low debt to service ratio and no problem passing the stress test.
So, if Sally and John want to make this change they will need to come up with an additional $12,500.00 in cash plus their down payment and other closing costs OR potentially use an alternative lender at a much higher interest rate.
The mortgage cap as it is written today will only apply to borrowers with 20% down or more and will apply to one or if you have multiple mortgages (I.e mutiple properties) they will be all added and considered with the cap.
So, all in all if you are thinking of buying or upgrading your home 2024 is the year to do it!
Think of selling? We have seen in the past when new rules come into place like this, it typically slows the market for a while.
We would love to sit down and have a tea or coffee and talk about your goals, and put a plan into place to navigate the ever changing mortgage environment.
Call us today!
Charlene Gulka, Realtor with Re/Max Escarpment. 905 545 1188
