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Understanding New Federal Mortgage Rules

Why It’s More Important than Ever to Work with an Ottawa Mortgage Broker

If you’re finally ready to buy a new home in 2018, take a moment to read this. Newly implemented mortgage rules might affect your decision and ability to buy. But don’t worry! An Ottawa mortgage broker can help you buy a home and effectively navigate new rules and rates.

Working with a mortgage broker allows you to find other lenders who won’t enforce these new strict mortgage rules, so your dreams of buying a new home can still become a reality. You can say goodbye to renting or living in your parent’s house, and start your future living and investing in your own home.

New Mortgage Stress Tests

On January 1, 2018, Canadians saw the introduction of stricter mortgage rules that may affect many homeowners and potential homebuyers. A mortgage stress test is now required for those renewing, refinancing, or applying for a mortgage from a federally regulated financial institution. This stress test requires applicants to prove they have the financial means to pay for mortgage interest rates that are much higher than their current contract rates. And with the recent hike in Canadian interest rates, the mortgage stress test will be even harder to pass now.

In January 2017, new mortgage rules came into effect for homebuyers who had small down payments and short-term mortgages of less than five years. These rules required a stress test and mortgage insurance for down payments that were less than 20 percent. But with the new rules for 2018, even homebuyers who have a down payment of more than 20 percent will have to go through this stress test with the banks. If you switch your mortgage from one lender to another, they can use contract rates to qualify, as long as the mortgage was previously insured by CMHC, Genworth, or Canada Guaranty.

Hike in Interest Rates

To add even more pressure on homebuyers, the Bank of Canada hiked its lending rate from 0.25 percent to 1.25 percent, resulting in the country’s largest commercial lenders raising their benchmark rates by 0.25 percent as well. These lenders use their prime rate as a benchmark for setting short-term rates, such as variable-rate mortgages and lines of credit.

An increase in interest rates and the new mortgage regulations will make it much harder for people to buy their first homes. Many homebuyers who would have qualified for a mortgage for their preferred house last year will no longer qualify under these stricter rules.

While these new rules are in place to make sure borrowers don’t take on more debt than they can afford, the smaller mortgages they might qualify for may not be large enough to buy the homes they want. So what are the options now?

A mortgage broker can help you find a lender and mortgage rates best suited to your financial situation without putting you through the stress test.

Private Mortgages in Ottawa

With the new mortgage rules in place, it’s even harder for Canadians to buy property. Even if you have good credit and a stable income, you may no longer qualify for a mortgage under these rules. There was a time when only those with bad credit and unconventional incomes (i.e. self-employed) would not qualify for a mortgage from a bank. But now, these tight restrictions will make it harder for many Canadians to buy a new home or an investment property.

But that doesn’t mean you should give up on your dream of owning a home. Mortgage brokers can help you secure a mortgage from a private lender, investors who will lend you a mortgage without enforcing the strict regulations of a federally regulated financial institution.

After reviewing your financial situation, your mortgage broker will negotiate with lenders on your behalf, finding the best mortgage terms and rates to suit your situation. These mortgage terms are more flexible than they are with a bank, allowing you to agree to terms with the lender. Private lenders are also an option for those looking to renew their mortgages or refinance their homes.

For many Canadians, especially new potential homebuyers, the only other options these days are to keep renting or live with your parents until you can earn a high enough income to pass these strict mortgage stress tests. But you shouldn’t have to put your future on hold, especially when it was in reach not too long ago. These news rules and interest rates make it more important than ever to work with an Ottawa mortgage broker. Your mortgage broker negotiates with private lenders to help you secure a mortgage when the big banks won’t. With this help, you can make your dream of buying a home come true.

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