Why You Should Refinance Now

If you are considering a refinance for any reason – to consolidate your debt, pay for your kids’ education, renovate your home or buy an investment property – don’t delay… Proposed new mortgage rules include stress testing for conventional mortgages which, if implemented, will make refinance more difficult for many Canadians. The new rules could be in place before year end. And don’t forget about rising rates either.

The present day reality is as follows… If you wanted to refinance your mortgage, your broker or bank could approve you for the maximum amount that your income can carry, based on on the contract rate of your mortgage (let’s call it 3.14%) and 30 years amortization. This will roughly approve you for a mortgage that is 5 times your salary. In other words, your income of $100K will approve you for a mortgage of $500K.

Proposed new mortgage rules could lower your “qualifying power” by roughly 20 -30%, since the proposed “stress-test” will be using posted Bank of Canada rate (currently 4.89%) and 25 years amortization. Practically speaking, that $100K income could lower your maximum approved mortgage below $400K. 

And then there is always the question of rising interest rates. If Prime goes up another quarter this year, qualifying rate will most likely rise as well, not to mention that it could put pressure on fixed rates as well.