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As you may have heard, Canada's Finance Minister Bill Morneau unveiled a series of changes to the rules used to underwrite insured mortgages. Included in those changes, effective October 2016, was one termed a mortgage "stress test."

The stress test is applicable to insured mortgage applications. It's designed to ensure that borrowers are capable of paying their loans in the event interest rates rise, or their personal financial situation worsens. So now, no matter how low their actual mortgage rate, Canadian borrowers must show that they qualify for the Bank of Canada's Mortgage Qualifying Rate, which, for example, was 4.64 percent when the new rule came into effect — about twice what a borrower might actually be paying.

Prior to the new changes, the historically low mortgage rates allowed even first-time homebuyers with a modest income to qualify for a large loan. Now, buyers who previously qualified for a higher-priced home may experience a reduction in affordability.

If you're considering a move, you'll want to clarify if or how the new mortgage restrictions might apply to you, and if they do, what your best course of action is in today's everchanging real estate environment.

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Mortgage-in-arrears studies track the number of households that have not made a mortgage payment in three or more months. The latest figures show that of the almost 4.7 million mortgages in Canada, just 13,000 of them — 0.28 percent of mortgage holders with Canada's largest banks — are 90 days in arrears. This figure has been consistent throughout the last 20 years, riding out fluctuations in unemployment, interest rates and an up-and-down Canadian dollar.

The Canadian government has a conservative approach to household borrowing, instituting changes over the past few years that necessitate larger down payments and shorter mortgage amortization periods. Today's homebuyer must have a down payment of at least five percent, with the portion of the home price between $500,000 and $999,999 requiring a minimum down payment of ten percent. And because government-backed mortgage insurance is available only for homes with a purchase price of less than $1 million, borrowers buying homes at or above $1 million will need a down payment of at least 20 percent if their financing is coming from a federally regulated financial institution.

Home loans must be paid off sooner than before, too. Homeowners were once able to stretch their payments out over a period of up to 40 years; the current maximum amortization period for a high-ratio mortgage is now 25 years.

How comfortable are you with your loan arrangement? Please call today to discuss your existing mortgage versus your future financial goals.

* http://www.cba.ca

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