Qualifying for a mortgage in the future may get tougher…
warns Finance Minister, Jim Flaherty. In a recent Globe and Mail article (Report on Business), the federal government has suggested that mortgage amortizations may be reduced and/or the minimum downpayment requirement may be increased. Either way, this is definitely not good news for those still saving for a downpayment or have a particular home price range in mind.
Let’s for example say that you are presently pre-approved to purchase a home for $400,000 with a 5% downpayment. Considering the maximum amortization of 35 years, and a current 5 year fixed rate of 3.89%, your monthly payment (excluding property taxes) will be $1,702.51. This is based on a mortgage of $391,970 with CMHC fees added on. If the amortization was reduced only 5 years, the impact on your mortgage is a reduction of $29,203 that would not be available to you (if the lender and CMHC had previously pre-approved you for the maximum based on a 35 year amortization and monthly payments needed to be the same). A reduction of amortization to 25 years has the impact of $64,610 in our example! That’s $64,610 less of a home to qualify for! Never mind if they also change the downpayment requirement from 5% to 10%. You’ll now need an additional $20,000 to save up for your purchase!
Unfortunately, being pre-approved doesn’t really help either as this is mainly a “rate hold” guarantee and not an approval for a future mortgage. Once you have an accepted offer, the lender will only at that time be able to obtain CMHC insurance, and be within guidelines imposed at that time. So, if the amortization needs to be reduced or CMHC now requires a larger downpayment, your approval will be based on the new guidelines.
In any event, let’s all hope that Mr. Flaherty is not forced to take any drastic measures, as he has suggested, as no doubt these changes would have a major impact for many future home buyers.
Need someone with mortgage lending experience to help you in your refinance or purchase? Let my 30 plus years in this industry work for you! You can reach me, Ed Kolisnyk, an Accredited Mortgage Professional, locally in Kelowna and area at 250-808-9000 or for out-of-towners you can reach me toll free at 1-888-877-3535.
