Mortgage rules changing in 2018

As of January 1, new mortgage rules will be implemented in Canada.

The stress test rules for qualifying for a mortgage will be tougher and could affect both first time and existing homeowners.

Nathan Sugeng, a licensed insolvency trustee with Fontaine & Associates in Sudbury, says the rules are brought in through the banking regulators.

"Some of us may recall the mortgage collapse in the United States," he said.

"We don't want to see the same thing happen in Canada because that was a big strain on the economy and the banking system."

He says this isn't the first time this has happened, as over the years, changes have been made to tighten mortgage lending rules. Sugeng says the changes are designed to see if buyers can still pay their mortgages even if there's a large interest rate increase.

"So we've been in an environment with very, very low interest rates," he explained.

"But as we've seen this past year where there's been two interest rate changes by the Bank of Canada, future rate changes are also coming."

New and existing home buyers could be affected

He says the changes will help borrowers make sure they can afford their homes now, and in the future if interest rates were to rise.

Sugeng says there are two types of mortgage buyers: those who have 20 per cent of the purchase as a down payment, and others who don't and need to get an insured mortgage through an organization like the CMHC.

"If they don't have up to 20 per cent, they'll have to qualify for mortgage insurance and that comes at an additional cost," he said.

"It's not as easy to get mortgage insurance for a home buyer."

The changes will not only affect first time home buyers, Sugeng says, but also those who renew their mortgages.

"The stress tests does not need to be applied if you renew with the institution that your currently at," he said.

"But if you want to shop around for a better rate .... you'll have to pass the stress test with them."

He says another change will be for people who want to refinance their mortgages.

"If you've racked up a little bit of high interest debt, like credit card, when your mortgage comes up for renewal, this is an opportune time where you can take a little bit more money," he said.

"So if you're borrowing new money or refinancing, the stress test will apply."

Sugeng adds that he thinks the changes will affect the housing market.

"I think what's going to happen is that a lot of people are going to have to sharpen their pencils. You might not see the large bidding wars you hear of in the larger urban areas," he said.

"Because people won't have that ability to borrow more when they need to. There will be some cooling."