Effective October 17th the Federal government is now requiring all home buyers who are borrowing more than 80% of the price of their home to qualify for a higher interest rate.
Without getting overly complicated about the minutia, I’ll keep it simple. Any buyer who is entering into a purchase with high ratio financing (only 5-19% down) will have to qualify for the rate of 4.64% instead of the actual rate they are paying. This is for any term of mortgage. It used to be a 5 year fixed rate, you could qualify for the rate you would be paying.
My understanding is the government wants buyers to be more aware of what they can afford, not just what they qualify for.
Stacy Bell-Powell, of I Find Mortgages, www.ifindmortgages.com a mortgage broker to whom I refer some of my clients, has given us a specific example:
“Currently, if a client gets a mortgage with a fixed rate of five years or longer, we use their actual discounted interest rate for qualification purpose. If they take a term less than five years we need to use the Mortgage Qualifying Rate (or MQR) of 4.64% to qualify them. Effective October 17, 2016, regardless of the term selected, we will have to use the MQR to qualify them. The applies to all insured mortgages, so mortgages with less than 20% down payment.
For example, let’s assume a buyer has an income of $50,000.00/year and assuming no other debt payments, 5% down and good credit. Today, using a 5 year fixed rate of 2.44% this client would qualify for a purchase price of $324,000.00. Under the new rules this buyer would now qualify for a purchase price of $ 239,000.00.”
So if you are considering buying and are on the fence, any offer which has had approval and conditions waived by Oct 17th will not be subject to this new regulation. So act now!
Call me if you can move forward with speed!