Pending changes to Canadian mortgage rules may bite hard

On February 16, Finance Minister Jim Flaherty announced new rulesthat affect mortgage lenders and borrowers starting on April 19 of this year.

One of the changes requires that buyers qualify for their high-ratio mortgage based on the “five-year fixed rate” even if their mortgage payments are actually calculated on an available lower rate. In other words, the lender must calculate and evaluate your debt service ratiosas if you were taking a five-year fixed.

For the most part, the changes were met with a “no big deal” kind of attitude but not long after the announcement questions began to surface about which five-year fixed rate would prevail for the purpose of “qualification.” After all, RBC’s posted five-year fixed rateis 5.39% today, while some brokers have offers for the same term available as low as 3.59%.

CanadianMortgageTrends.com is reporting todaythat the “chartered bank 5-year posted rate” which is currently at 5.39% will be the benchmark lenders use to determine how much house a buyer can afford.

So how might that impact the Saskatoon real estate market?

Let’s assume that you have a household income of $75,000. Let’s also assume that property taxes and/or condo fees will set you back $2,400, and that you’d like to pay this puppy off within 25 years. Mortgage calculators, enthusiastic lenders and motivated real estate agents would suggest that you could afford to service debt of $356,109. Now, bump that rate up to 5.39% and suddenly you can only afford $296,279. Any buyer who is pushing the limits of their debt service ratio at brokerage level rates must seriously adjust their expectations, if they don’t just happen to be borderline enough to fall out the bottom end of the market.

Oh, by the way. If you’ve been thinking about taking a 35-year mortgage, the same assumptions outlined above result in a $90,000 trim to the housing budget.

This suddenly sounds like a tough pill to swallow if you ask me.

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Norm Fisher
Royal LePage Vidorra