What is the maximum mortgage amount one now qualifies for with the rules that came into effect on October 17th?
Short answer: LESS. A minimum of 20% less, in fact.
Before October 17th, the lenders calculated the maximum mortgage amount based on the contract rate of 2.49%, but not it is based on the Bank of Canada benchmark of 4.64%.
Here are three random scenarios that I have created to outline borrowers’ qualifying power before and after the change. Note they are all based on 25-years amortization, the new qualifying interest rate (5-year Bank of Canada benchmark, currently 4.64%) as well as a good credit score of 680 or greater. The first two are based on 5% down; the third is based on a 20% down payment, which does not require mortgage insurance.
Scenario #1 – A Young Professional
Gross Household Income $75,000
Monthly Expenses $450 (Car Loan and Student Loan)
Monthly Strata and Property Tax $484
Maximum Purchase Price Before Rule Change $435,000
Maximum Purchase Price After Rule Change $370,000 (18,500 Down Payment)
Scenarios #2 – Young Professional Couple
Gross Household Income $140,000
Monthly Expenses $1,230 (Car & Personal Loans, Unsecured LOC, Credit Card)
Monthly Strata and Property Tax $584
Maximum Purchase Price Before Rule Change $840,000
Maximum Purchase Price After Rule Change $725,000 ($47,500 Down Payment)
Scenarios #3 – Established Gen-X Couple with a Family
Gross Household Income $180,000
Monthly Expenses $2,300
Monthly Property Tax $417
Maximum Purchase Price $960,000 ($71,000 Down Payment Required)
(Mortgage amounts over $999,999 are not eligible for default insurance. Therefore one would be required to apply a 20% down payment.)
This is just a quick summary of three simple scenarios. Now more than ever, we as mortgage consumers need to get pre-qualified before making any real estate-based decisions. The average cost to buy a single-family detached home in my area is $1,175,000, townhouses are approximately $535,000 followed by condos priced around $377,000.
Talk to an experienced Mortgage Advisor at Client First Mortgage Solutions if you are looking to re-finance or purchase a new home. As independent mortgage brokers, we are not tied to any one lender or range of products. Our goal is to help you successfully finance your home or property. We will start by getting to know you and your homeownership goals. We will make a recommendation, drawing from available mortgage products that match your needs, and we will decide together on what’s right for you.
Original Article https://dominionlending.ca/news/whats-number-maximum-mortgage-number/
