New rules to be implemented October 17th by the Canadian Government will mean home buyers money won’t stretch as far. The new rule will change the calculation requiring Canadians to test their ability to pay their High Ratio mortgage as if the rate they are paying is the Bank of Canada’s five-year fixed posted mortgage rate. This rate is currently 4.64%, much higher than the rate a Canadian would actually pay on their mortgage. Currently those buying a home cannot spend more than 39% of their gross family income on housing and that will remain the same, however the calculation to arrive at 39% will use the Bank of Canada’s five-year fixed posted mortgage rate as opposed to the actual mortgage rate that will be paid.

The reason for this change is to reduce the severity and probability of a housing correction, as purchasers will not be able to have as big of a mortgage, meaning they will be in a better position to pay their mortgage should interest rates rise.

Please see the following links for more information:

http://www.fin.gc.ca/n16/data/16-117_1-eng.asp

 http://www.moneysense.ca/spend/real-estate/mortgages/no-more-discounts-for-fixed-rate-mortgage-borrowers/

Let’s use the numbers in an real life example: 

Let’s assume your family’s income is  $80,000 and you have no debt.

Currently, we calculate your Housing affordability or GDS ratio based on 35% of your gross income.  (We can use higher ratios with excellent credit but that is a separate discussion!)

So this allows you to spend $2333 per month for housing.  Subtract off $100 for heat and $250 for property taxes and that leaves $1983 for  your mortgage payment.

Today, you can qualify for a mortgage of $ 445,500 based on the contracted rate of 2.44%.

As of Oct 17th you will qualify for a mortgage of $354,000 with the posted rate at 4.64%

The difference is $91500.

Source Trisha Issac   www.trishaisaac.com