By now, you are likely well aware of the mortgage law changes which came into effect for Ontario on January 1. The new laws impose stricter stress test requirements on homeowners, forcing individuals to prove they are able to qualify for a mortgage at a higher than current interest rate. The purpose is to verify to lenders, that new owners could still pay their mortgage in times of “stress” (i.e. when interest rates increase). But to meet these new requirements, what will that realistically mean for the first-time homeowner in 2018?
Down Payment Amount
At the crux of the change, and at a very basic level, individuals will need to be able to come up with a larger down payment before they are able to apply for a loan, and many experts predict the laws will disqualify up to 10% of homebuyers as a result. As someone seeking to get into the market, you may find yourself having to rent a little longer than planned while the new laws come into place and the market levels out over the first year of their implementation.
The need to prove you have more money available for home ownership will leave many individuals qualifying for lower loan amounts and thereby leaving them with less money to spend. This translates to choosing smaller housing options over larger, pricier categories, and we will likely see increased activity in the lower-priced homes classification.
The alternative? For some people, home ownership in 2018 may continue to look quite the same, whereby experts predict the new laws will have a drastic impact not only on those looking to buy for the first time, buy also on those looking to move up to the next stage in their housing. Seeking to negotiate a new mortgage or re-finance will still leave individuals subject to the stress test, potentially making a new property a non-viable option.
While there may be some hurdles to overcome and some changes to understand in your quest for a home in 2018, don’t dismiss it as an option. It might just take a little bit of extra time and a little bit more shopping around with your realtor to make it happen.