The mortgage market is still adjusting to the new rules that came into effect on January 1, 2018. With all borrowers now having to qualify at the Bank of Canada Benchmark Rate (currently 5.14%) or the contract rate plus 2% regardless of how much down payment they have, we are seeing a drop of about 20% in purchase power across the board. The impact on consumers can be painful in some cases. Here are just two stories from clients I’m currently working with.

First a young mother who qualified about 3-years ago for a condominium but at the time she didn’t realize her RRSP was not accessible for her down payment. She had to pull out of the market to work on accumulating the required down payment.

Shift forward to today and she has received a gift from her parents of $285,000 for a down payment and wants to take another run at the market. You may think that having this much to put down would make a suitable purchase a no-brainer.

Unfortunately, she is currently on disability after a car accident. She receives pretty much 100% of her regular pay and carries no credit balances but having to now qualify as if her interest rate were 5.49% (contract rate of 3.49% plus 2%) she can only get a mortgage of $100,000 putting her maximum purchase at $385,000. In today’s Vancouver real estate market this likely puts her into an aging building about a 45-minute drive from her child’s school. She now wonders if it’s even worth it.

Case number two… a recently retired government worker.

He and his brother inherited their parents home this summer after their mother passed. They will sell the house this spring and my client will have about $400,000 to buy a modest retirement home.

Because of a reduced income and a higher qualifying-rate he now no longer has any bank options even though his payments will be quite manageable. We need a mortgage based on pure equity and these options are slim and come at a higher rate from only a few lenders. How fair is it that this gentleman with stellar credit will be basically penalized by having a higher rate and payment after years of public service?

The government’s efforts to protect the public from overextending themselves has gone too far with this last move. Canadians are extremely responsible when it comes to paying their mortgages. Less than 1/3^rd of a percentage of mortgages are in default – we just make our payments, period.

Consumers who have been concentrating on building equity and down payments are feeling the brunt of the impact. Instead of being rewarded for their efforts they have been given fewer options. If this is the new mortgage reality, now more than ever a Mortgage Broker is truly an asset.

A recent article featured on www.mortgagebrokernews.ca brings up some interesting points to consider.

With approximately 47% of mortgages in Canada coming up for renewal in 2018 and in a rising rate climate it would be wise to consider the impact on our personal mortgage. What will these increases mean for you?

70% of Canadians are in 5-year fixed rate mortgages and the rates these people secured in 2013 are still similar to what is being offered in 2018 so a possible increase in payment that comes along with a slightly higher rate could be quite easy to handle.

However, in 2019 rates will likely be significantly higher than what consumers locked into in 2014. The payment shock could be substantial. Not to mention that increases in the Prime rate will also affect unsecured credit such as lines of credit and credit cards. And the Bank of Canada is certainly in an upward trend with the Prime.

Translation… as rates go up for mortgages and other credit accounts, so do payments.

What can you do? If your mortgage is maturing this year or in 2019 it is highly advisable to contact an experienced Mortgage Broker to evaluate your position. You will likely have seen a healthy appreciation in value in your home in the past few years so perhaps it’s time to get ahead of the “rate train” and consider consolidating your unsecured credit with your mortgage and lock in at today’s still low rates before you start to feel the pinch.

The latest rule changes that came into effect January 1, 2018 could also have an impact on your ability to qualify for what you need so getting a free evaluation will be more valuable than ever.

If you’d like to read the full article CLICK HERE and as always, feel free to contact me with any questions you may have.