Seeing that the real-estate prices were spiraling out of control and could lead to an imbalanced market, the Ottawa government put in place several new mortgage rules last October. The new rules were spelled out amid fears that many home buyers were taking on huge mortgages that they may not be able to pay if the interest levels were to go up even slightly.
To avoid a situation where buyers would be forced to default and cause severe financial liability to the government, many of the existing mortgage rules have been made stricter. As it stands, Canadian homebuyers will have to meet the below criteria before they can qualify to get home insurance.
New Qualifications to Buy a House: Mortgage Stress Test Introduced
The Mortgage Stress Test is aimed at checking if home buyers would be able to pay off their debts even if the interest rates creep up. Buyers will now have to qualify at the Bank of Canada’s five-year fixed posted mortgage rate of 4.64, a significantly higher number than what customers can negotiate currently.
Earlier, the test wasn’t applicable to those who paid a down payment of 20 percent or more. Now, however, everyone has to go through a mortgage stress test before they can qualify. The rule affects those who can pay a down payment of 20 percent but are seeking a large mortgage that might get successively hard to repay if the interest rate goes up.
The other aspect of the stress test is that home buyers cannot use more than 39 percent of their income on home-related costs like mortgage payments, heat, and taxes. Find out how the new housing rules affect your purchasing power.
Canada’s Housing Market is Safe and Conservative
The federal government’s sharp intervention and Moody’s recent downgrading of Big Six Canadian banks earlier this year made it appear that the country’s mortgage market is courting more risk than it can afford. But many do not concur. In fact, vice president and head of capital markets economics at Scotiabank, Derek Holt says that warnings about the country’s housing market are “grossly misinformed.” Here are some reasons why he thinks the Canadian mortgage market is quite healthy:
- House Prices Do Not Affect Everyone: 2 out of 3 people in Canada do not have a mortgage to pay. A third of the population have already paid off their mortgage debts, another one-third have a mortgage, while the rest simply rent. This implies that the housing market hasn’t exposed itself to any large-scale risk it cannot absorb.
- Canadian Spending is Conservative: The idea that many Canadians use their Home Equity Line of Credit (HELOC) towards needless expenditure is not an accurate one, says Holt. According to him, most Canadians use funds for things like debt consolidation, home renovations, education, and investments.
- Mortgage Stress Test Protects the Market: Experts believe that the mortgage stress test introduced by the government is a smart move because it considerably eliminates the risk of bad debts.
- Housing Equity on the Rise: Holt at Scotiabank adds that unlike popular perception, many young Canadians are paying down payments with their own savings, and not relying on their parents. Calling it an encouraging sign, he says that home equity is always rising, and can easily absorb up to a 20 percent shock, which makes buying a home a great investment at any time.
Solid Real Estate Market in Toronto Makes It an Ideal Investment Destination — Why Not Invest In a Luxury Condo?
Toronto’s housing market has always been upbeat, given that the city has been growing at a frenetic pace, attracting people from all over the world. Finding good housing will remain a challenge, but for those who are currently interested in buying a home, there are some fabulous condo projects underway in the Yorkville area. One such project is The Davies, located at Avenue Rd. and Cottingham. Beautifully designed with posh interiors, luxurious building amenities, and great outdoor settings, The Davies is just a 10-minute walk from the celebrated Yorkville downtown. Overlooking the picturesque Robertson Davies Park, the building is only nine stories tall, with an understated elegance and intimate charm. Check out the building’s floor plans and these fantastic views to see why The Davies luxury condo project is one of its kind.