New mortgage rules November 2016
New mortgage rules November 2016: Introduction
New mortgage rules November 2016 come into effect. We recently discussed Canada’s alarming consumer debt and the housing boom. The government stepped in to prevent Canadians from assuming bigger mortgages than they could afford. One of the measures recently put into effect was a mortgage rate stress test for approving high-ratio mortgages.
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New mortgage rules November 2016: Mortgage rate stress test
This stress test is now applied to all insured mortgages to prevent defaults in the future should the mortgage rates rise. Buyers applying for an insured mortgage now have to show they can afford to pay it back at the Bank of Canada’s five-year fixed rate of 4.64%. This means that some Canadians who could have qualified for a mortgage before the stress test will no longer qualify.
New mortgage rules November 2016: Can Canadians avoid the mortgage rate stress test by borrowing in the shadow lending market?
Some mortgage brokers who are clearly disgruntled at the thought of the Canadian mortgage rules forcing them to lose business have worked out a way to bypass the stress test and beat the system by sending their clients to private lenders – also called the shadow lending market or subprime lenders. Buyers borrow money from private lenders so that they can make a 20% down payment which qualifies them to take out an uninsured mortgage, therefore there is no stress test required.
New mortgage rules November 2016: Is it a good idea to borrow from private lenders?
Typically, private second mortgages in Toronto charge a minimum interest rate of 7% – 10%. For people who really want to be home owners it may seem like a good idea, but they’re going to be left with a very high mortgage payment; perhaps higher than they can afford to pay in the long run.
The new mortgage rules November 2016 and programs like the mortgage rate stress test are enacted to protect Canadians, not punish them. Thinking that you can beat the system doesn’t make sound financial sense.
New mortgage rules November 2016: Do you have too much debt?
Have you assumed a mortgage that you can’t afford to pay? Are your mortgage payments stopping you from paying your other debts? Don’t let these ghosts and goblins scare you.
Contact Ira Smith Trustee & Receiver Inc. today. Our team of professional trustees can help you manage your financial crisis and get you back on your feet Starting Over, Starting Now.
