Wondering how the new mortgage rules may affect you? You’re not alone. That’s why in this issue we asked Denny Segal, Mortgage Broker with Origin Mortgages, how Canada’s new mortgage regulations could impact you and for his suggestions about how to get on the home ownership ladder sooner.
“Almost every new regulation is designed to make it tougher to qualify for a mortgage,” Denny acknowledges. “The goal, however, is to ensure purchasers, especially first time homebuyers, are well prepared to handle the financial responsibilities of a mortgage payment — even if interest rates or their life circumstances change.”
One of the most significant differences, and one that’s particularly important for many first time homebuyers, is the impact on high ratio mortgages (less than 20% down payment). Previously, if you took a five-year term your financial institution would qualify you at the discounted rate of interest. Now you’ll have to qualify at the Bank of Canada’s posted, five-year rate regardless of the term you choose. That can be a difference in interest rate of as much as 2.5% — costs which add up quickly.
Your credit rating is one of the first and most important considerations a lender will look at, so establishing an impeccable history of managing debt responsibly is essential. The good news is that you can start this process early — even as a student.
“Credit cards often have a negative connotation, but they aren’t necessarily a bad thing,” Denny says. “What matters is how you manage your debt because that speaks to your character.” He recommends getting a credit card as soon as possible — even one with a $500 limit — then paying the balance off every month to establish your reliability.
What This Means For You Using a discount rate of 2.9% versus a posted rate of 4.6%, the $200,000 mortgage that use to cost $936/month will now be $1,118/month while a $300,000 mortgage will jump from $1,404 to $1,677/month.
Starting out on the employment ladder, it’s tempting to take every opportunity to advance — even when that promotion means changing companies. But Denny cautions that most lenders like to see the stability of at least one year with the same employer. “And you definitely don’t want to be changing jobs the week before you apply for a mortgage.”
“Talk to your banker or mortgage broker to get a sense of your buying power so you aren’t looking at properties outside your price range,” Denny stresses. “But remember that a pre-approval is still an estimate and will be subject to factors like strata fees, whether there’s a mortgage helper suite, and how much your property taxes are. Often it’s better to know your bottom line and then get a rate hold.”
Don’t forget the closing costs: property transfer tax, legal fees, and utility transfer expenses.