Mortgage Affordability Ratios Change
Some sweeping changes are coming to the mortgage industry in Canada.
For decades, a person’s ability to afford a mortgage was determined by two numbers (ratios). Total home ownership costs compared to total family income and total debt compared to total family income.
Basically your home ownership costs could not be greater than 32% of your salary and your total debt could not be greater that 40% of your total salary.
For example, someone making $50,000 could afford a mortgage size of $175,000 (more or less) given a 5% down payment.
This is about to change.
Competition breads better products and this is what is happening in the mortgage industry. For years CMHC has been the sole supplier of mortgage insurance. Even if your mortgage wasn’t insured, CMHC had a major role in determining your bank’s mortgage policies.
A few years ago GE (General Electric) was given permission to compete against CMHC. They did a great job and some improvements in the mortgage business, as CMHC and GE wrestled for market share, are apparent. (i.e. lower insurance fees)
The story is about to start a new chapter. AIG has come to Canada and will become the third competitor to enter the mortgage insurance business.
CMHC wasn’t a great competitor being, at heart, a government run organization. However, GE (renamed Genworth) and AIG are going to clash in ways that will be great for the general consumer.
The first bout will lay waste to the decades’ old fixed ratio numbers mentioned above.
Now, that same person making $50,000 can now afford a mortgage size of $290,000 (more or less) given a 5% down payment. That is over a $100,000 difference. The best part is that the mortgage interest rate charged on either mortgage will be 5.19% or whatever the current best rate is.
The new rules allow for a 45% of total debt to total salary and allow for 40 year amortizations. The 32% ratio has been dropped altogether.
Please note you need to have very good credit and very little other debt in order maximize you mortgage size. If you have mortgage questions we have answers.
Steven Faux, Your Mortgages Made For You!
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Sutton - Premiere (SW)
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Steve's Rates
| Mortgage Term | Steve's Rates | Bank Rates |
|---|---|---|
| Variable Rate | 3.50% | 6.25% |
| 6 Month Closed | 5.75% | 5.95% |
| 1 Year Closed | 4.99% | 5.75% |
| 2 Year Closed | 4.99% | 5.90% |
| 3 Year Closed | 5.15% | 6.00% |
| 4 Year Closed | 5.15% | 6.15% |
| 5 Year Closed | 5.19% | 6.30% |
| 7 Year Closed | 5.45% | 6.95% |
| 10 Year Closed | 5.50% | 7.40% |
| 15 Year Closed | 6.10% | n/a |
| 18 Year Closed | 6.00% | n/a |
| 25 Year Closed | 6.28% | n/a |
Rates are subject to constant change, for the best rates call 667-9816.
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