The Canadian government implemented a new stress test on homebuyers in 2018 regardless of their down payment amount. This reduced the amount of financing they qualified for and some estimates showing Canadians being able to afford 20% less house than before the new rules. It was implemented as a way to cool housing markets in the nation’s hottest cities like Toronto and Vancouver. Looking at the first year of the new rules, it may be working.

Home sales are expected to fall to a nine-year low in 2019, according to the Canadian Real Estate Association. While sales are set to rebound in Ontario and Quebec, they are expected to fall in Alberta and British Columbia.

If this is the year you plan on buying a new home or refinance your mortgage, then you should familiarize yourself with the rules introduced last year. The qualifying rate now or stress test for uninsured mortgages, which is mortgages that have at least a 20% down payment, is the five-year benchmark rate set by the Bank of Canada or 200 basis points greater than the mortgage’s contractual rate – whichever is larger. The change affected first time home buyers most as they could afford 20% less than before the new rules.

Additionally, rules surrounding down payments also changed for homes valued at more than $500,000. Now, a 5% minimum down payment is required on the first $500,000, 10% for any portion between $500,000 to $1 million, and a 20% flat down payment on homes valued at more than $1 million.

If you choose to get a mortgage with less than the minimum down payment or if you are self-employed or have bad credit, you will need to obtain mortgage loan insurance. This product does not protect you but, instead, protects your lender in case you are not able to make your mortgage payments. It is not available for homes that are $1 million or more or if the loan does not meet the mortgage insurance company’s criteria. Premiums for this insurance range from 0.6% to 4.50% of the price of your home and vary depending on how much of a down payment you offer. You will pay less on mortgage loan insurance the larger your down payment is. You can either add the cost of the insurance premium to your mortgage loan or pay it up front. Interest will incur on it if you choose to add it to your loan at the same rate as your mortgage.

As a first time home buyer, you should make sure you understand the new regulatory rules introduced in 2018 and how they affect what you can afford. It may mean you have to rent a little longer to save up for a more substantial down payment, or you might have to consider a condo instead of a detached home. When you are ready to lock in a mortgage, call Mortgage Makers. Our experienced brokers will make sure you get the best interest rate and mortgage products. We will do all the shopping around for you and have access to better rates than the big banks.