As you may have heard, there have been some major mortgage changes to be implemented come January 1st, 2018. We have highlighted the major points of what you need to know and how we see it affecting the real estate market here in Ottawa.

What you Need to Know

Anyone applying for a mortgage will have to under-go a ‘stress-test’ in which they will have to demonstrate the ability to afford a mortgage at a rate of 4.89% OR the rate being offered plus 2%, whichever is higher.

This ‘stress-test’ will be in place for all individuals applying for mortgages regardless of the downpayment amount, including those putting 20% down or more.

Example

You are pre-approved in October 2017 for a mortgage of $500,000 at 5-year fixed rate of 3.25% (payments are $2430/month)

Upon completion of the stress-test in January 2018 you will have to prove that you can carry a rate of 5.25% (3.25%+ 2%)

Your new pre-approved amount as of January 2018 will be $409,000.

Result: Though your mortgage rate will maintain, your pre-approved mortgage amount will be slashed (by an estimated 20%)

Impact on Ottawa

Overall, we believe there will be some significant changes to the Ottawa real estate market other than purchasing power being potentially decreased 20% or more.

We predict we will see an already strong rental market heat up with the rental rates rising due to buyers facing difficulties securing financing for properties that suit their family needs (with ideal schooling district, size of home, proximity to work).

We see the previously slower condo sales market pick up as the affordability and central locations will be within price points for many buyers, first time buyers in particular.

We also see the market for homes under 450k becoming more competitive, while homes in between 500k-750k having less inventory as sellers will be reluctant to sell and deal with potentially having less purchasing power for their next home.

You Should Also Know…

If you have a 20% down payment, applying for a longer mortgage term may help boost your pre-approval amount… though you will be paying more in the long term.

To avoid the stress-test, deals have to be firm prior to January 1, 2018 but can close afterwards.

Pre-approval rates are good for up to 120 days however when the stress test comes into effect January 1, the pre-approval amount will most likely change.

The stress test will not apply if you’re renewing with the same financial institution. However if you are looking to refinance with a different financial institution you a may need to pass the stress-test.