How the New Lending Rules Affect Edmonton Home Buyers Qualifying for Their First Mortgage
The Canadian Government implemented new rules for mortgage lenders on January 1, 2018. The stress test was created to try and slow down the housing markets in Toronto and Vancouver. An unintended consequence was that people getting their first mortgage in Edmonton or elsewhere in Canada were also affected dramatically.
Banks like to lend money because they make money when you pay them back. The stress test makes it harder for people getting their first mortgage in Edmonton, or elsewhere to take out loans for a down payment so they may obtain the mortgage loan, because the stress test increases people’s debt ratio.
The implementation of the stress test reduced what borrowers qualify for by about 20%. This means that a borrower that would have qualified for $300,000 will only qualify for $240,000 under the stress test rules. This had an especially tough impact on first time borrowers who were using a line of credit for the down payment. All of the different lending rules can be confusing which is why now more than ever you should talk to an experienced mortgage broker when trying to get your first mortgage.
How Does it Work?
Here is an example of how the stress test works:
- Kelly wants a $350,000 home
- The current mortgage rate available to her is 3.20%
- The Bank of Canada benchmark rate is 5.34%
- Kelly must qualify using the 5.34% rate, even though her contract mortgage rate will be 3.20%
- Note: Kelly has to qualify for a monthly mortgage payment of $2045 even though her actual payment will be $1660
- Kelly knows that her car will be paid off in a few months.
- A mortgage broker can negotiate with the bank to exclude that payment so that Kelly can still buy the home she wants.
If you think about this situation, you can see how the broker has offset the negative impact of the stress test by eliminating the car loan from her debt ratio, since it was almost paid off.
Again, a broker will help you navigate the new rules. Mortgage brokers can help people get their first mortgage in Edmonton the most. This is because mortgage brokers have the knowledge and experience so that people obtaining their first mortgage can make educated decisions about their financial future.
Dominion Lending Centers Mortgage Mentors put borrowers first. If you are looking to get your first mortgage in Edmonton give us a call today!Request Mortgage Info