Yesterday, the Bank of Canada (BOC) raised its overnight interest rate 25 basis points to 1.25 per cent - citing the growing economy and rising inflationary trends. The six major banks had raised their posted five-year, fixed-rate mortgage rates to 5.14 per cent from 4.99 per cent.
If you're wondering what impact this could have on your mortgage, you're not alone! This increase is expected to signify a tighter lending environment in 2018.
Just over a year ago, a "stress test" for people taking out mortgages with less than 20% down payment on the value of a home was introduced. Starting to EVERYONE seeking mortgage financing, regardless of how big of a down payment is made. Homebuyers will now have to show that they can afford their mortgage payments at either the five-year average rate posted by the Bank of Canada, or 2 percentage points higher than whatever deal they wereable to negotiate with their lender — whichever measurement is higher. This would apply to all variable and fixed-rate mortgages, and regardless of length of term. These changes are being extended to all of the new borrowers purchasing and have more than 20% as a down payment (therefore taking out an uninsured mortgage). As well, homeowners who have more than 20% equity in their home who are looking to refinance will be impacted.
As mentioned in a recent article by the Real Estate Board of Greater Vancouver...
"Since January 1, 2018, all home buyers, even those who don’t require mortgage insurance, must qualify for their mortgage at a higher rate. Under the new rules, the minimum qualifying rate for a mortgage is:
• the greater of the Bank of Canada’s five-year benchmark rate; or
• the contractual mortgage rate plus two per cent.
Mortgage costs and income required
Mortgage terms before rate increase assumes: 75% loan, 25% down payment, 25-year amortization; interest rate: 4.99%?
Mortgage terms after rate increase assumes: 75% loan, 25% down payment, 25-year amortization; interest rate: 5.14%
Click here to read the BOC’s announcement.