New mortgage rules 2016

October 19, 2016 | Posted by: Alex Vinarski

Starting Oct. 17, borrowers who take out insured mortgages that are fixed-rate loans of five years or longer will have to qualify under posted rate. Posted rate now 4.64%, and 5 years fixed rate is 2.29%.

Existing rules require home buyers who take out short-term or variable-rate mortgages with down payments of 20 per cent or less to prove they can afford payments at a much higher interest rate than they will actually pay. Meanwhile, borrowers who take out fixed-rate insured mortgages of five years or longer have their income tested against the interest rate that they will actually be paying.

The end result is that borrowers can now typically qualify for much larger mortgages if they opt for a longer-term, fixed rate mortgage.

The rules apply only to new mortgages, not renewals, but they are significant given that a majority of homeowners are thought to take out the types of fixed-rate mortgages that will be affected by the stricter qualification requirements.

Ottawa also unveiled new measures aimed at portfolio insurance, a type of bulk insurance that banks use for mortgages with down payments of 20 per cent or more. Starting Nov. 30, the federal government will now require portfolio-insured mortgages to qualify under the same criteria used for the insurance taken out on homeowners with small down payments. Portfolio-insured mortgages will now be limited to a maximum amortization period of 25 years and a maximum purchase price of less than $1-million. It requires all portfolio-insured mortgages to be owner-occupied, prohibiting insurance on rental homes and investment properties.

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