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Confused By Your Rate Options?

The 2016 stress test rules affect your rates. Here's some insight — and help to find your best mortgage.

Confused by Your Rate Options?

Posted January 25, 2017

Don’t worry, you’re not alone. Here's a little insight into what went down.

In October and November of 2016, the Federal Government introduced a number of (rather) robust changes for the mortgage industry in Canada. These changes mean that rates have become more complicated and more specific to the borrower.

The biggest impact of these changes is on rates for high ratio insured mortgages (less than 20% down), though low ratio mortgages (20% or more down) are also affected.

New restrictions have changed how both high-ratio and low-ratio mortgages work:

  • All homebuyers seeking an insured mortgage (regardless of down payment amount), are subject to a mortgage-rate stress test
  • 5-year fixed terms now have to qualify using Canada's Benchmark Rate vs. the actual contract rate, which reduces what you can qualify for by approx. 25%
  • For first-time or investment buyers, the increased rate stress test means that you'll qualify for less
  • Maximum amortizations are set at 25 years
  • Bulk-insurance provided by your lender for a low ratio mortgage now has further restrictions, such as property values below $1,000,000 (at the original time of purchase), with refinance and renewals affected
  • Insurance premiums have also gone up, so your Loan-to-Value (LTV) ratio and credit score now have a bigger impact on your mortgage amount, and in turn your rate

In order for Big Banks and Monoline Lenders to facilitate borrowers who fall outside of these restrictions, their mortgages must be funded without insurance, which means clients will now have to pay a slightly higher rate.

Before these changes, a client may not have even been aware that their mortgage is insured (with the cost taken on by the lender). And mortgage rates and options were pretty straight forward, allowing enough flexibility that the same lower rate may apply to different situations. For example, you may have had the same rate as your neighbour, even though your circumstances are possibly quite different.

Now, the rate you receive has to be tailored to your specific situation. So, whether it's a purchase, refinance, a primary property or for rental income, your down payment amount and credit score will impact your rate and the amount you're able to borrow for a mortgage loan.

What's the important take-away here? You really need a TNM broker to help, more than ever.

At True North Mortgage, our friendly, expert brokers know all the rules AND how to find your best mortgage fit. More than that, we can help get the best rate that you qualify for, made possible through our volume discount.

As a savvy consumer, getting the best rate for your situation means you'll save thousands, plus enjoy a stress-free mortgage process.

Talk to us today. We're here to help (a lot).

We'll help you save money and time.