The Department of Finance just hit us with a mortgage rule change this morning.
Effective October 17, 2016 insured mortgages will now have to qualify using the benchmark interest rates. Currently only mortgages in a variable or for a term less than 5 years need to be qualified using the benchmark rate. So effective October 17, even though a mortgage rate that a person may be getting is 2.39% they must qualify using the benchmark rate of 4.64%. This will reduce the mortgage amount that a person qualifies for within their personal debt ratios. This is how it can effect a persons mortgage application
Mortgage application today – Mortgage $300,000 – Rate 2.39% – Monthly payment $1327.52
Mortgage application Oct 17 – Mortgage $300,000 – Rate 4.64% – Monthly payment $1683.85
That difference in mortgage interest rate makes it so a person has to add $356.33 more to their debt ratios. With the GDS (Gross Debt Service) ratio maximums sitting at 34 (with credit scores below 680) or 39 (credit score above 680) this will make it harder to qualify for the mortgage that a person may be looking at.
Applications, to fall under the current model, must be submitted to the insurers before the October 17th date change.
Thanks for Reading
Scott Bourke, AMP
DLC Regional Mortgage Group