The fall real estate has been off to a strong start. In the central Toronto area (which varies from reports about the Toronto Real Estate Board as a whole) we continue to see multiple offers both in the housing and condo sectors. While, thankfully, it is not to the same degree as the spring market, our low inventory levels and the increased demand to live in the heart of the city, has many buyers keen to act.
One other important factor is the upcoming change to mortgage rules. While this hasn’t been publicized loudly yet, many of us believe very shortly we will see even stronger demand.
So what are the new rules and how will they affect you?
Below is a good summary from my mortgage broker. A 20% shortfall could mean a lot from a purchasing power perspective.
What do I suggest?
1. Let’s chat. Let’s see where you are at, what your goals are for the next little while and create a plan to make sure you are maximizing your opportunities.
2. Reach out to your mortgage broker to get idea of what this change could mean to you.
As always, I’m here to help and always enjoy hearing from you. 🙂
From Mortgage Brokers Jake Abramowicz & Lena Ohanjanians:
The new STRESS-TEST means the following: ALL mortgages regardless of down payment will have to qualify at +2% higher than the contract rate OR the 5-year posted rate –whichever is higher.
Example 1: A 1-year fixed mortgage today goes for about 2.94% from TD. Therefore, adding 2% this borrower must qualify at 4.94%.
Example 2: A 5-year fixed today with Scotiabank is about 3.34%. Add 2%, the borrower has to qualify at 5.34%, which is much higher.
So let’s take “Bill” for example. Bill works for a IT company. He makes $100,000 per year and has saved 20% down payment for his first ever condo purchase.
TODAY: Bill could borrow $640,000 using his income.
TOMORROW: Bill can borrow $510,000.
A few additional / unknown things:
We aren’t sure when the changes will happen. Some banks might choose to start implementing in advance of January 1st. So if you want to buy something, buy it now, before the changes come.
We are unsure about amortization terms.
We are still waiting to see if contracts signed before the changes with closing dates after will fall under the new or existing rules
Pre-construction terms still need to be finalized.
For those who will want to wait and say “If people can afford 20% less, that means prices will fall by 20%” may never be convinced to the strength of our market.
For those who want or need to refinance, they should do it before the changes occur, since they’ll be able to afford LESS mortgage which means LESS money to invest in more real estate The sky isn’t falling!
Pre-approvals don’t mean anything. If a buyer gets a pre-approval and hasn’t purchased before January 1st they will be subject to the new rules.”
Often new rules are announced in bits, so in my discussions with Lena and Jake it sounds like more clarification will be coming.
In the meantime – if you would like to know exactly where you stand it’s best to speak with a professional mortgage broker. I would be happy to share some names.