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 now it is based on the Bank of Canada benchmark rate 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-year 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 - young professional
Gross Household Income $75,000
Monthly Expenses $450 (car loan and student loan)
Monthly Strata & Property Tax $484
Maximum Purchase Price Now $370,000 ($18,500 down payment)
Before Rule Change $435,000
Scenario #2 - young professional couple
Gross Household Income $140,000
Monthly Expenses $1,230 (car & personal loans, unsecured LOC, credit card)
Monthly Strata & Property Tax $584
Maximum Purchase Price Now $725,000 ($36,250 down payment)
Before Rule Change $840,000
Scenario #2 - established Gen-X with a family
Gross Household Income $180,000
Monthly Expenses $2,300 (car & personal loans, credit card)
Monthly Property Tax $417
Maximum Purchase Price $960,000 ($48,000 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 and dirty 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.
My suggestion, and the first thing that one should do if you are looking to re-finance or purchase a new home, is to contact your trusted mortgage broker to find out exactly how much you qualify for.
Don't get caught up in the emotional experience of buying a new home. Make sure you treat it like any other business decision: the numbers need to make sense first, then you need to figure which parts of your WANT and NEED list you can live with and live without.