Toronto Real Estate Dreams

When the new mortgage qualification rules were announced earlier this year by the Finance Minister Jim Flaherty, many would be home buyers let out a collective gasp. These new rules were created to slow down the country wide problem of house poor home owners. But many are voicing their frustrations.

Under the new mortgage qualification rules, to qualify for a mortgage buyers will need to prove that they can afford a standard five year fixed rate mortgage. With these measures, the government aims to prepare borrowers for the inevitable interest rate increases. Interest rate are currently at an all time low but are expected to begin rising later on this year. With stricter qualifying rules, the government hopes that it will discourage buyers from borrowing amounts that they will not be able to afford later on.

This means that the Toronto real estate market, particularly the condo market, should see a decrease in competition as a number of first time buyers drop out of the race. If a buyer barely qualified under the old rules, this buyer will no longer be able to afford the same level of mortgage under the new ones.

Experts are saying that these changes will not affect smart investors. Only those who let their emotions get the best of them, or have unrealistic expectations, will suffer. The number of bidding wars taking place in the Toronto real estate market should slow down as potential buyers no longer qualify for the same levels of mortgages. It should also reduce the number of offers without a financing condition as potential buyers may want to keep an out in the event that the amount of mortgage they require is declined.

First time buyers will have to take a good hard look at their finances and figure out how much they can realistically afford to pay on a monthly basis. Traditionally, mortgage brokers would use the three year fixed mortgage rate to determine whether a potential buyer could afford to make the payments on the mortgage amount. Under the new rules, the lenders will have to use a five year rate test, which represents about one percentage point more than the three year fixed rate.

First time buyers are not the only ones affected by these new mortgage rules. Investors will also feel the heat. In an effort to reduce the amount of prospecting going on the Greater Toronto Area, the required down payment under the new rules has been raised to 20 per cent, up from the current 5 per cent.  So investors wishing to purchase a rental property will need to come up with quite a bit more money to seal the deal.

These new rules may also have another long term positive effect on the real estate market. With stricter lending practices, we should be able to avoid a real estate bubble. Prices of homes and condos should level off or increase at a more realistic rate. With a little less competition and with buyers qualifying for less money, emotional purchases should decline as well.

Filed under: Uncategorized by admin Tagged with: condos