For would-be GTA homebuyers that have been on the proverbial fence about purchasing a new home, understand that the rules of buying has gotten a lot more complicated. It’s not as simple to buy a home today as it was just a few years ago, and it’s already causing Canadians to rethink their home buying strategy. That isn’t to say you can’t afford a home in the coming years – you just need to be flexible and plan accordingly. Things have changed, but a new home may still be in your future. Below is what you need to know about Canada’s new, tougher mortgage rules and what it means for you, the prospective GTA homebuyer.
Mortgage stress tests
One of the biggest disruptors for some GTA homebuyers is the mortgage stress test – an indicator that dictates whether or not you can absorb financial hardship and still pay your mortgage. Using a minimum qualifying rate equal to the greater of Bank of Canada’s five-year benchmark rate or their contractual rate in addition to two percentage points, the stress test aims provide lenders the assurance they need to know that they can lend with confidence.
The test could potentially result in borrowers being qualified to afford much less than they had originally planned. If you are house hunting without first undergoing a mortgage preapproval, get it done to ensure you’re not wasting your time looking at homes that are possibly going to be out of your price range. Plus, it’s a great way to plan ahead and know how much of a down payment you’re going to need.
Know thy down payment
Yes, you’re going to need to put down a down payment – and it could be higher than you had anticipated. The rules for down payments have also changed; currently, any home less than $500,000 will have to pay approximately 5% of the total cost of the home. For homes costing more than $500,000 but less than $1,000,000, expect to pay 5% for the first $500,000 and another 10% on the remaining amount. For homes over $1,000,000 expect to pay approximately 20% – or at least $200,000.
This down payment dictates the type of mortgage you qualify for
Your down payment also decides the type of mortgage GTA homebuyers will receive. While paying only 5% sounds doable, you will get a high-ratio mortgage which also requires CMHC mortgage default insurance. Your premium depends on the amount of the mortgage – between 0.6% – 4.5%. It may not seem like a huge deal, but consider how much extra you will be paying on mortgage default insurance for the life of your mortgage. Is it truly worth it? Moreover, consider that a higher down payment could decrease your interest rate. While 20% is definitely a higher amount than 5-10%, paying a higher down payment could pay for itself before the life of your loan is paid in full; thus, if applicable always opt for a higher down payment.
Dunpar Home’s builder mortgage
Want a better way to own your own home? Here at Dunpar Homes, we have the solution. We are starting to sell our new Streetsville Centre neighbourhood – a community of 201 homes each with three bedrooms and a two-car garage that will prove to have more than enough space for your family.
A luxurious townhome in the fabulous Mississauga can be yours thanks to our builder mortgage and H.O.M.E. financing program that allows you to use the equity from your current property to fund your next home here at Mississauga. Make the move a seamless one thanks to the convenience that only Dunpar Homes can offer!
