For some time now, the real estate sector in Canada has been experiencing a lot of uncertainties with a lot of players flocking the market with an aim to maximize their wealth. There has been a wide outcry by a lot of residents, especially in Toronto and Ontario about the constant and intense increase of the house prices. In order to regulate such practices and generally scale up the real estate sector, new rules, and regulation that are set to be implemented come January 2018 have been introduced and a lot of investors are yet to come to terms with a majority of these regulations. To shed some light on that, this article will take you through the new changes with Canadian mortgages for 2018.
Minimum Qualifying Rate/ 'Stress test'
A stress test is a condition that requires any person interested to invest in real estate Canada to be charged a mortgage rate at the greater of; the 5-year benchmark rate that has been set by the Bank of Canada of 4.89% or 2% points in addition to the negotiated rate. Initially, only individuals with less than 20% were required to go through the test. However, come 2018 things will be a bit different as even those potential buyers with more than 20% will be required to go through the stress test before they can be given the loan.
What effect will this new law like to have on the home buyers.
First of all, the new homeowners are the one likely to be affected more when this new law start to be implemented since their purchasing power will be slightly impaired since regardless of the deposit the will be willing to put, they will still have to go through the stress test. Mathematically, their purchasing power will be reduced by a rate of about 20%. This means that in the coming days the number of real estate homeowners is likely to slightly decrease which will make it much easier to control the real estate market.
Loan to Value( LTV) measurements.
The new Canadian mortgage that is set to start in 2018 requires the Mortgage lenders/banks to adjust their loan to value limits to include the aspects of risk responsiveness. The LTV will be updated time to time as the real estate market grow and also considering the general economic growth. However, it's important to note that the credit unions that engage in mortgage loans and the private banks will not be affected by this policy.
What effect will this have on Canadian mortgage operation?
This policy has specifically been introduced to protect the interests of the mortgage lenders by ensuring that they set up organizational strategies meant to reduce the risk associated with the mortgage loan. However, this policy has not got the lenders by surprise since most of them already have a mechanism in place to mitigate the mortgage risk and to evolve with the changing dynamics. On the other hand, the credit unions and private mortgage lenders now have a chance to capitalize on this chance to make sure the boost their operations accordingly though with a lot of caution.
Ideally, these are the two primary aspects that the new Canadian mortgage policies are set to cover. The primary objective is to protect the interest of their citizens and to change the face of the Canadian real estate market. For far too long there has been a lot of freedom and loopholes which investors have been swift to exploit to maximize their wealth. As we await more details on how the government intends to implement this crucial addition to the real estate sector, anybody planning to buy or build a home anytime from January 2018 need to go through these policies and seek further clarification from an expert on something that may not be clear to them. For the lenders, you have to alternative but to start changing your organizational policies to include the new addition.
In conclusion, it's important to note that the government is not trying to discourage real estate investment in Canada. The new policies are only meant to streamline the sector that has been facing a lot of uncertainty lately and control the mortgage lending rates in the country. In essence, the new policies are just meant to complement the existing mortgage lending law and regulation in Canada.