Why you may want to consider applying for a mortgage or refinancing your existing one before New Year?
If you are considering conventional uninsured mortgage in the next 4-5 months for either purchasing a property, refinancing, or switching lenders, it might be crucial to get approval before Jan 1, 2018.
Due to a new rule for uninsured mortgages after New Year you may qualify for $100,000-$150,000 less then you expected. That could be a problem or even a deal breaker for some people.
Assuming you have an annual income of $100,000, you do not have any liabilities (0 debts) and the property you trying to finance/refinance is in GTA or area with similar property taxes and maintenance fees, the maximum mortgage loan you qualify now for a conventional 3.39% 5 year fixed 25y amortization is about $541,000. After New Year the max amount you will qualify for the same one will be approx. $442,000 or $99,000 less. Lets see another case - if your annual income is $150,000 for the same situation the numbers are respectively $870,000 before Jan 1st and $711,000 after, so you will qualify for $159,000 less.
Again, this is only for conventional uninsured 5 year fixed rate mortgages with Loan-To-Value 80% or less. All others has been already affected by the Qualifying Stress rule introduced last year.
Also, this includes refinancing or switching an existing mortgage to a new lender.
Straight mortgage renewals are not supposed to be affected, but at the moment there is no clarity on this and most likely will depend on your lender, or the institution behind your lender, so you might be surprised even at renewal.
A mortgage approval before the end of the year will let you qualify for a bigger loan and most of the mortgages have 120 days hold period, so my advice is take advantage of this opportunity, if applicable to you.
Minister Morneau announces new benchmark rate for qualifying insured mortgages
For many Canadians, their home is the most important investment they will make in their lifetime. That is why the Government of Canada has introduced measures to help more Canadians achieve their housing needs while also taking measured actions to contain risks in the housing market. A stable and healthy housing market is part of a strong economy, which is vital to building and supporting a strong middle class.
Today, Minister of Finance, Bill Morneau, announced changes to the benchmark rate used to determine the minimum qualifying rate for insured mortgages, also known as the stress test. These changes will come into effect on April 6, 2020. The new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%.
This follows a recent review by federal financial agencies which concluded that the minimum qualifying rate should be more dynamic to better reflect the evolution of market conditions. Overall, the review concluded that mortgage standards are working to ensure that home buyers are able to afford their homes even if interest rates rise, incomes change, or families are faced with unforeseen expenses. This adjustment to the stress test will allow it to be more representative of the mortgage rates offered by lenders and more responsive to market conditions.
The Office of the Superintendent of Financial Institutions (OSFI) also announced today that it is considering the same new benchmark rate to determine the minimum qualifying rate for uninsured mortgages. OSFI is seeking input from interested stakeholders on this proposal before March 17, 2020.
The Contagion of Fear
Fears of a possible coronavirus pandemic are sweeping the world. Markets are jittery with little hard data to go on.
With the first case now reported in Canada, many are recalling the 2003 SARS where Canada was one of the epicenters. Arguably the biggest (economic) lesson from that experience is that fear is the biggest risk to the outlook.
The impact of the SARS pandemic on the Canadian economy is difficult to estimate, confounded as it was by the slowing US economy, the invasion of Iraq and other events, but the Bank of Canada estimated -0.6ppt hit to annualized growth in Q2-2003, or just over 0.1% on the level of GDP.
While it is premature to predict the path of todays coronavirus outbreak, we estimate that a SARS-equivalent pandemic today could have a similar impact on the Canadian economy with an estimated hit of just over 0.1% on the level of GDP by mid-2020, at which point a pandemic should be contained. This estimate is subject to a significant degree of uncertainty with risks skewed to a potentially larger impact.
The effect should not be significant enough to trigger a broader economic malaise, but could this finally push Governor Poloz over the line to proactively stimulate the economy in his next rate call?