The Canadian government wants to provide new homeowners the ability to withstand rising interest rates. In 2017, the Canadian Government implemented changes for new applicants of high-ratio mortgages. The change was based on having applicants qualify at a higher interest rate, while still offering lower interest rates. By doing this, it ensured that if rates go up, these homeowners would still be able to afford the debt.
New Mortgage Rules in Canada
As of January 2018, additional mortgage changes have been implemented. The new 2018 mortgage changes simply take that philosophy and apply it to conventional mortgages. All Canadian buyers are required to pass a Mortgage Stress Test, which is essentially a worst case scenario. Homeowners must also qualify for the Bank Of Canada 5 year benchmark rate, currently set at 4.99%.
Borrowing Capacity on Buying a Home in Kelowna
New homeowners should expect their borrowing capacity to decrease based on the mortgage stress test. “The larger the gap between your pre-approved interest rate and the stressed rate will further impact/reduce your borrowing capacity.” However, new homeowners will not to be out of pocket any more on their monthly mortgage costs. For examples of the approximate reduced borrowing power under new stress test regulations, view the examples and payment calculator from Rampone Marsh.
Borrowing capacity is geared towards your GDS (gross debt service) and TDS (total debt service). An increase in these ratios, decreases your borrowing capacity. Placing a higher down-payment on your home, an increase in household income, or reduced debt will increase your borrowing power.
Kelowna Life’s Advice For Homebuyers
It’s important to have a good team surrounding you when it comes to your home purchase. Buying a home and signing a mortgage is a major milestone and a decision that requires qualified and trustworthy professionals.
It goes beyond just the real estate agent. A good mortgage broker can present different options and opportunities to make something work for your specific situation. We highly recommend doing some research on mortgage brokers in Kelowna or the Okanagan, or suggest using a mortgage broker recommended by Kelowna Life real estate professionals. We are happy to recommend trusted and knowledgeable mortgage brokers to our clients.
We have a great team at Kelowna Life Real Estate Group. It is imperative that you choose your representative carefully when making such an important decision. The help of our experienced team with extensive knowledge of Kelowna and surrounding area will ensure you make an informed decision. We listen to your needs, develop a custom tailored plan, and ensure every detail is taken care of so you can find the right home for you and your family.