Effective October 17, 2016, 5 year fixed mortgages will have to qualify at posted rate. How does that impact a couple buying their first home?
Currently, if the couple apply for a mortgage they would qualify based on the contract rate and not posted rate if they choose a 5 year fixed mortgage.
Combined Income: $120,000
Annual Property Tax: $4,000
Contract Rate: 2.39% 5 year fixed
Amortization: 25 years
Maximum Mortgage: $620,706.18
Effective October 17
Posted Rate to be used for qualifying: 4.64%
Maximum mortgage: $489,355.48, that's $131,350 less or 21% reduction in buying power. This will push a number of first time home buyers out of the market and turn them into renters.
Real Estate Investor Opportunity
The new rule will create more supply of tenants and increased demand for current supply of rental units which would lead to higher rents.