New Mortgage Rules

Canada's new mortgage rules could leave millennials struggling to buy a home, realtors say. But there are benefits, too. Such as keeping them from buying units they can't afford. Millennials could lose as much as 20% of their "purchsaing power" with the new federal mortgage rules which kicked in on October 17th, 2016. 

"Purchasing Power" describes a consumer's ability to buy goods and services. In this case it means the amount they can borrow to buy a home. Such a household can currently buy a $505,000 home with a 5% down payment. But that wouldn't be possible under the new rules because of a "stress test" requiring all insured mortgages, which have a down payment of less than 20%, to be qualified at higher rates.

OLD RULE:  Household Income:  $80,000  Purchase Price:  $505,000

NEW RULE: Household Income: $80,000 Purchase Price: $405,000

The hypothetical family could only buy a $405,000 property under the new rules - $100,000, or 20% less than what they could have had before. But this family would be borrowing well beyond their means, as defined by the Canada Mortgage and Housing Corporation.

CMHC considers housing affordable if it takes up less than 30% of before-tax household income. This family would be borrowng $479,750 if they bought a $505,000 home with a 5% down payment. Spread that money over 25 years (a mortgage's max.amortization period) add a 3% interest rate, and house payments would cost the family 34% of their income.

Add in maintenance fees, property taxes, and heating, and the family is paying much more than it can afford. Even a $405,000 home would stretch this family's budget, costing them as much as 27% of their income, add $400 per month along for maintenance fees, and the family is putting down 33% of their income toward housing.

The new rules are aimed at calming rising levels of debt across the country. The latest government data shows the debt-to-disposable income ratio is  at 167.6% a record high. If the stress test were applied today, it would force homebuyers to prove they could still pay off their mortgage if interest rates rose to 4.64% - a higher expense for many buyers, considering many recent mortgages have rates of around 3%

My thoughts to you: Check with your financing instituation if your pre-approval has changed if you have any questions please contact me

How Exciting Getting Ready for your First Home

Buying a home is probably the biggest financial decision you will ever make, and for most people, it requires getting mortgage. You can follow three steps to make sure you get the mortgage that's best for you:

• figuring out what features you need and want in a mortgage;
• getting preapproved for a mortgage; and
• understanding your rights when you apply for a mortgage.

You have decided that you want to purchase a home. There are some important questions you need to ask yourself before and during the mortgage process such as;

• how much of a down payment do you have?
• what price range for a home is within your budget?
  
• have you considered all the costs involved with owning a home, such as
  

                       - mortgage payments

                       - utility costs

                       - property taxes, and 

                       - maintenance costs

• Are you expecting any big changes that will affect your household budget in the near future? For example, are you planning on starting a family or adding other expenses, such as car payments, that would afftect your budget..

Presently for First Time Buyers you may receive a refund from the Ontario Goverment of up to $2,000 of the land transfer tax you paid. 

• You must be at least 18 years old
• You cannot have previously owned a home, or an interest in a home, anywhere in the world, and the same applies to your spouse.
  

When you are ready please contact me so we can arrange a time to discuss the home buying process in more detail and any questions you might have. I also have information for you !