CTV Morning Live: Mortgage Minute

Frank Napolitano opens up the discussion with the closing of tax loopholes foreign investors have been accused of taking advantage of by the Government. Frank mentions that this isn't a situation that affects Ottawa, and occurs more so in bigger and more volatile real estate markets such as Toronto & Vancouver.

He then moves on to the next part of the new mortgage rules that are set to begin October 17th, 2016, the new "stress test" to qualify for mortgage. Qualifying for a mortgage will now become significantly tougher, especially for young Canadians looking to enter the housing market.

Based on what they've announced, effective October 17th, potential home buyers will now have to qualify on a much higher rate (Bank of Canada's qualifying rate, currently at 4.64%) in order to obtain financing on a 5 year fixed mortgage, one of the most common and popular product available. As it stands now, to qualify for a 5 year fixed, a potential home buyer uses the rate available to them at the time of applying for a mortgage.

For example, as it stands now, a potential home buyer's situation would look like:

Applying for a high ratio mortgage of $380,000 at a 5 year fixed at 2.49% (which is the actual rate you will receive on closing). Mortgage payment that you must qualify on would be $1,700.38.

With the new rules set to come into effect next month, one's scenario would look more so like this:

Purchasing a $400,000 home, 5% down payment qualifying at a 5 year fixed at 4.64% (despite 2.49% being the rate you close with). Mortgage payment that you must qualify on would be$2,132.87.

The different in the qualifying monthly payment can be a deciding factor on whether you can become approved for financing by traditional banks in today's market. This will result in potential home buyers having to either wait many more months, or even years before entering the market, or having to shop for a home with a much lower purchase price.

This change will also affect existing homebuyers who wish to refinance their mortgage within the next few months.

Frank believes young Canadians will be affected by this new change the most and suggests that potential homebuyers think twice about obtaining more unsecured credit, such as credit cards, unsecured line of credits and large car loans.

It is important that you discuss your mortgage situation, especially if it is coming up for renewal within the next 4 months. Contact one of our mortgage brokers today!

Click here to watch the entire interview on CTV Morning Live.