Canada’s new mortgage rule changes officially go into effect today.
The changes include higher qualification rates for five-year fixed mortgages, as well as effectively forcing many lenders to qualify borrowers with conventional mortgages--loans with a down payment of at least 20%--using the same rules as high-ratio mortgages.
Most observers think these rules will have a big impact on the housing market, ultimately leading to a decrease in average price across the country, especially in markets like Toronto and Vancouver.
These new rules will also impact an important choice for Canadians who already have a mortgage. Thousands of Canadian borrowers will be effectively locked to one borrower.
The logic goes something like this. If someone can no longer qualify for a new mortgage with another bank, they’re forced to renew with their current lender.
Many banks treat renewal time as a good opportunity to really sock it to borrowers. The difference between renewal rates and discounted rates to new customers can be as high as 1% or even 2%. On a $300,000 mortgage, this translates into an extra $3,000 to $6,000 per year.
If banks know it’s suddenly gotten harder to move your mortgage to a different lender, you better believe they’re going to offer higher rates than normal.
Shopping your mortgage at renewal time has traditionally been a very effective way for regular Canadians to easily put some extra cash in their pocket. If these folks lose the ability to shop around, they could end up paying a lot of extra interest over the life of a 25-year mortgage.
