In order to ensure financial stability, the Canadian Government in October 2017 decided to introduce new rules for mortgages. These apply to all mortgage loans with 20% or more of down payments from January 2018.
The new rules for mortgages state that all those borrowers who have made a down payment of 20% or more on their mortgage loans would have to undergo stress tests regarding servicing of these loans. This rule was already in place for people with less than 20% down payment since January of 2017 and now has its scope expanded. So, if you are a resident of Mississauga area and want to move into a new and better home, you would have a slightly tougher challenge in securing a mortgage loan.
The stress tests will be faced by not just those getting a new mortgage but even those renewing or refinancing one. These tests would involve an evaluation of the recipient’s ability to cope with interest rates which are higher than what they are currently paying.
Since July 2008, when the world was hurtling towards recession, the Canadian authorities have introduced seven new regulations in the mortgage market. The idea behind these new rules for mortgages is clear: to ensure that Canadian financial institutions don’t emulate their American counterparts by taking more debt than they can manage. It is worth noting that Canada’s economy was one of the less-damaged ones from the recession of 2008.
Market experts estimate that around 100,000 prospective home buyers would be affected by these new rules for mortgages and be rendered unable to draw a mortgage loan. This change will have different effects on those taking a new mortgage loan and those who are renewing it.
Those applying for a new loan will have to, in case of failing the stress test, look for a smaller loan or simply keep accumulating their income till they have the means of not failing the stress test.
On the other hand, those renewing their mortgage may be safer as the lenders are not required to put their clients through the stress tests. But this means you won’t be able to go elsewhere or borrow at a better rate if you are unable to pass the stress test.
Overall, considering the success of the Canadian government in steering the economy through choppy waters, you can’t fault them for being cautious and introducing these new rules for mortgages.
