Over the past decade prices for homes have spiked. The average detached home in Durham Region was selling for $444,000 a decade ago and currently the same homes are selling for $991.000. When values increase as dramatically as they have the results are damaging to Buyers. Add to this mortgage rules that lessen the borrowing potential of Buyers and higher rates it may seem like the housing market is at a low point. Let’s cover some recent changes that have the potential of greatly helping Buyers and Sellers out when they need to deal with moving or mortgages. It would help to start by looking back and determining how our federal government implemented changes that made buying homes more challenging.

The first major change was implementing a “stress test.” The idea behind this was to require a Buyer to qualify for a mortgage 2% higher than they rate they would receive. This was to ensure that in the event mortgage rates increased that the homeowner, upon renewing their mortgage could afford a higher payment. The side effect was it lowered Buyer’s affordability. The other item was to include the stress test on a homeowner renewing their mortgage. This would apply to a homeowner who wanted, on renewal of their mortgage, to move their mortgage to another lender. In this case the borrower would be required to qualify with the new lender using the stress test. In many cases a homeowner would stay with their current lender, not wanting to re-qualify knowing that they were paying more than market rates.

The new policy changes are:

• Increasing the amount a Buyer with less than 20% down from $1,000,000 to $1,500,000.
• Increasing the amortization of a mortgage from 25 – 30 years for qualified Buyers.
• Allowing homeowners to switch lenders at renewal times without re-qualifying using the stress test.

The first change, increasing the ceiling to $1,500,00 was a necessary improvement given the increased values. It is safe to say that a million dollars does not buy the home it did years ago with values increasing over the past decade, and the $1 million cap kept Buyers out of certain areas. At the end of September, the average home in Toronto was $1,113,000 meaning that a Buyer with less than 20% as a downpayment could not buy a home in the city. This was a needed and timely change. The second alteration was a bit more complicated and needs some clarification. The reasoning behind increasing the amortization to 30 years is that with adding 5 extra years  to pay off a mortgage, it drops the monthly payment  making it more manageable, a $500,000 mortgage at 5% would be $2,909 per month and with a 30 year amortization the payment would drop to $2,668, a savings of $241 per month. The complications arise with who this change is made available to. The change applies only to first time home Buyers. The definition of a first time Buyer is defined as.

• A person who has never owned a home prior to a purchase.
• A person who has not owned a principal residence for 4 years.
• A married person or someone in a common-law relationship going thru divorce or breakdown.

The last change is very welcomed. This allows homeowners to find a better mortgage rate or terms than they are being offered by their current lender on renewal with no arduous re-qualification requirements.

These changes are welcomed by many industry professionals, home Buyers and Sellers. With increasing values and mortgage rates any positive changes that the government can do to lessen the burden of both qualifying for a loan or for renewing a mortgage are steps in the right direction. These are “demand side” policies however what is also needed are changes allowing more homes to be built. The main issue that has caused unaffordability is that there are more Buyers than the current supply of homes. Until that situation becomes balanced, we will still see dramatic increases in home values.

If you have questions about qualifying for a mortgage, or renewing a mortgage I can be reached at lindsay@buyselllove.ca or 905-743-5555.

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