Let your home be your financial hero!

As January 1, 2018, all Canadian buyers borrowing mortgage funds from a federally regulated lender including insured borrowers (those with a down payments of 20% or more), will be subject to the OSFI Mortgage Stress Test.

Lenders will now have to qualify ALL conventional mortgages using the Bank of Canada’s (BoC) 5-year benchmark rate, which is currently set at 4.99%, or at the existing mortgage current contracted rate + 2% if that rate exceeds the benchmark rate. So, if you are currently pre-approved at 3.5%, you will now have to qualify as if your interest rate were 5.5%, which could significantly reduce your buying power and affordability options.

Affordability is determined by your taxable income along with the amount of any debt outstanding including monthly payments you make to service that debt.

Assuming it is your principal residence you are purchasing, you will need to calculate 32% of your income for use toward a mortgage payment, property taxes and heating costs. If you are purchasing a condo you will need to include half of the estimated monthly condominium maintenance fees in this calculation.

Then, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards, lines of credit payments. The lesser of the first or second calculation will be used to determine how much of your income will be used to your mortgage payment. These calculations are based on typical lender guidelines.

If the payment amount you are comfortable with is less than 32% of your income you may want to settle for the lower amount rather than stretch yourself financially. Make sure you don't leave yourself house poor. We will help you structure your payments so that you can still afford simple luxuries.

For homes with a purchase price greater than $500,000 and less than $1 million, the minimum down payment is 5% of the first $500,000 and then 10% of the remaining balance. For example, on a home priced at $650,000, your down payment would be $25,000 on the first $500,000 and $15,000 on $150,000 for a total of down payment of $40,000.

Purchasing a home with a down payment of less than 20% is considered a “high-ratio mortgage” which means you will be required to be insured by a mortgage insurer such as the Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada or Canada Guaranty who will “guarantee” your mortgage to a lender. Mortgage default insurance premiums range between 0.5% and 2.75% of the mortgage amount and this premium will be added to mortgage and included in your payments.

If you make a down payment of 20% or more you will qualify for a conventional mortgage which means you will NOT have to take out mortgage default insurance to secure your mortgage. Note: For homes with a purchase price of $1 million or more, the minimum down payment is 20%.

There are many ways you pay down your mortgage faster and see significant savings on interest payments. Here are some options you may use: