Friday December 29th, 2017 is the last day Canadians will be able to qualify for a mortgage at their contract rate. As of January 1st, 2018 all mortgagors will need to qualify at the Bank of Canada’s prescribed 5 year rate, or 2% higher than their contract rate, whichever is greater. This means about 20% less money available to qualified borrowers across the board.

This will have some serious effects on Canadian real estate and lending for 2018.

First the numbers……

If you are a family earning a household income of $100,000 you can refinance your mortgage or purchase a new home and qualify for a mortgage of $552,049.83 when you put 20% down. After the ball drops in Times Square at midnight on December 31st, 2017 the amount you can qualify for will shrink to $458,950.46. That is almost $100,000 of low interest rate money that you might have been able to use to invest or consolidate higher interest rate debt that will be gone.

So….. What happens after January 1st, 2018?

We have a little trick that might help some of our clients, but for how long?

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Since 30 year amortizations will still be allowed in the New Year some qualifying borrowers will elect to extend their amortizations to 30 years. In doing so our $100,000 annual income family will be able to qualify for a mortgage of about $500,000. Even though they would have been able to qualify for almost $620,000 before Ryan Seacrest and Anderson Cooper take to the airways it is still better than the $458,950.46 they will qualify for under a 25 year amortization.

Another option for borrowers who are unhappy with the amounts they will qualify for under the new rules is to search for a Non-Bank Lender. The Banks will have their hands tied by the new lending rules, but other lenders who are regulated provincially will not. That means slightly higher rates to borrow money, but at least borrowers will be able to pay off higher interest rate debt.

Regardless of who you are, or what you qualify for today or after January 1st, 2018 you will probably notice some changes as a result of these new rules.

Some things to look for:

1.       Real estate prices will probably see some reductions, although, no one knows for certain because we don’t measure how much foreign investment there is in real estate.
2.       The reduction in borrowing limits probably means the condo markets in Toronto and Vancouver will heat up.
3.       Credit Unions and other non-bank lenders will get a larger piece of the market, until the banks lobby to even the playing field.
4.       Well qualified homeowners will turn to second mortgages and home equity loans to satisfy short term borrowing needs.
5.       More Regulations? We can also probably expect a few more rules to come.

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What can you do?

If you are considering a refinance, call us to get an application submitted before midnight Friday, December 29th, 2017. We have extra staff working right now processing applications before the deadline. Otherwise, sit tight and enjoy the ride. Know that your team at MorCan Direct will always have your back with innovative solutions to any of your borrowing needs. Check us out on CBC News tomorrow as Marcus Tzaferis discusses the new rules and their impact.

Happy New Year!