Are you ready for the new mortgage rules?
This year we saw the government implement a stress test and change the all time low interest rates. In 2018, the rules are changing again. On Jan. 1, the government's newest borrower "stress test" will make it far tougher to get a mortgage at a federally regulated lender, like a bank.
The new mortgage rules are designed to remove higher-leveraged borrowers from the market. And that could stabilize housing, to some degree. However, it’s going to make it harder to own a home and your purchasing power is going to be less. Because the mortgage rules are changing, people are changing how they borrow.
What Can I Do?
The truth is, you might be part of the overwhelming majority of borrowers who can't qualify at a 25-year amortization. If this is you, you will need to choose a 30-year amortization period. If you choose a 30 year amortization period, this lowers the restrictiveness of the new stress test by roughly half.
What Does A 30 Year Amortization Look Like?
First and foremost, you should know that no less than 63 per cent of new low-ratio mortgages by value, have amortizations over 25 years. That's a surge of 11 percentage points in just two years.
A longer amortization provides you lower monthly payments and because of this it is appealing to many people. However, it does mean that more interest will be paid over the life of the mortgage and you will build the equity in your home at a slower pace.
A 30-year amortization slashes your payment about 10 per cent. But it also costs you over 20% more interest over the life of a mortgage, assuming you don't make prepayments.
If you have questions or concerns about the new rules we suggest talking to your bank or to your mortgage specialist. If we can do anything to help you, please let us know.