Changes to Canadian mortgage rules that come into effect this month will impact some potential real estate buyers going forward, said Shelley Kohut-Harder, an associate broker with Re/Max ACA Realty.
“What is going to happen is people are going to have to qualify at a higher interest rate so they are going to be able to qualify for less than what they could have,” Kohut-Harder told the Gazette. “When they purchase they are not going to have nearly the purchasing power that they had.
“It will impact anybody who has less than 20 per cent down and it also impacts buyers over 20 per cent, because right now a lot of banks have been protecting themselves by underwriting mortgages that are still not high-ratio financed, but they have been putting the CMHC insurance in place anyhow, but the banks have been paying that insurance fee. Now if you have a property and you have 20 per cent down, but the bank still feels there is risk, they are either not going to finance you or you're going to have to qualify at the higher rate again.
“It is definitely going to impact the number of buyers we have. For different price ranges, it is bringing down their purchasing power.”
The new mortgage rules, which came into effect on Oct. 17, include a so-called stress test requiring mortgage applicants to qualify at the current Bank of Canada benchmark rate.
For example, with five per cent down and an annual income of $100,000, an applicant can now qualify for a mortgage of $445,240, down from the previous maximum of $502,300.
Asked if she sees it as bad news or good news, she said, “I think we are going to feel it as realtors, because right now that entry-level market has been a very good market this year because the interest rates are really low.
“But in the long run I understand why they are doing it, and what they are concerned about is what happens in five years' time if the interest rates are double or worse. What they are trying to do is get people to purchase less expensive property so we don't end up like the United States with a bunch of people underwater. I get what they are doing.
“If interest rates go higher, it is a protection. I get why they are doing it.”
Patricia McKean is a mortgage broker with Mortgage Architects.
“Having people qualify for a new purchase at 4.64 (current benchmark) is a really good idea,” said McKean, who is also a Mountain View County councillor. “Rates are at an all-time low and so if rates went up at all it makes sure they can still afford it when it comes to renewal time.
“The benchmark qualifying is good. It makes people responsible and makes sure that if we see a peak in interest rates we are not going to have a problem down the road.”
The Bank of Canada is reviewing the new rules as they relate to existing mortgages.
“They've extended it to March (2017) to grandfather anybody in a renewal or a refinance (position) because they are still reviewing those policies,” she said.
“I strongly believe that them looking at the grandfathering of rentals, refinances, renewals, those things is positive because I think there would have been a lot of negative affects in the future because of the changes.
“The problem with these people that are in mortgages now and say they have paid on it for 10 years, and they have 15 per cent equity and they didn't qualify under the new rules, they could potentially be put in a foreclosure position. Those were consequences that weren't thought of before.”
"It is definitely going to impact the number of buyers we have."Shelley Kohut-Harder,associate broker with Re/Max ACA Realty
