If you are looking to buy a home in the near future, you may want to familiarize yourself with the new proposed rules from the federal government. It might make it more difficult to get a mortgage, especially for first-time home buyers as mortgage interest rates are likely to increase. The goal of these new rules is to prevent a situation where homeowners can no longer afford their mortgages, especially since the levels of household indebtedness is already increasing rapidly in Canada.
In contrast, some studies have shown that these rules won’t make a huge difference since uninsured mortgages are already less risky – owners have already shown that they have access to capital when they provided a down payment. But the government is interested in focusing more on risky lending, especially when it comes to co-lending agreements or bundled mortgages.
The Canadian Property Market
There are a few hot markets in Canada at the moment, with Vancouver being one of the most popular markets available. But with a hot market automatically comes increased risk – one that the government wants to minimize as much as possible.
They want to specifically curb reckless lending practices by preventing arrangements that are designed to circumvent regulatory requirements. Current rules prohibit lenders in Canada to lend only up to 65 percent of a home’s value to a borrower, but some agreements with unregulated entities might enable lenders to lend up to 90 percent of a home’s value.
New home buyers will now have to show that they will be able to afford a two percent increase in mortgage rates, as part of the approval process. New suggestions for uninsured mortgages are also being tested, especially to curb reckless lending, as mentioned above.
These new rules proposed by the Office of the Superintendent of Financial Institutions are mainly to reduce the risk in the financial sector, as well as cool the hot housing markets in Canada. Reducing bundled lending options are probably one of the most important aspects in order for these rules to be effective in the market. These rules will undoubtedly make it more difficult for a home buyer to secure a mortgage, but it’s ultimately to reduce financial risk where possible.
If you are looking for sound advice on how to quality for a mortgage or how to prepare for possible mortgage interest rates, speak to the Mortgage Guys. We specialize in mortgage applications, property investments, and more.