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New Mortgage Rules: The Income Effect

New mortgage rules came into effect on Oct. 17, which alters mortgage qualifications for high-ratio insured mortgages. That means if you put a down payment of less than 20%, you must now qualify for your mortgage at the Bank of Canada’s posted rate (which is currently 4.64%) rather than your contract mortgage rate. The new rule change affects how much you can afford to spend on a new home.

To determine the impact of the new rule change, we looked at the income required to afford the average home in different regions across Canada based on the gross debt service (GDS) ratio. Your GDS looks at the proportion of your income used to cover your mortgage payments, property tax, home heating costs, and 50% of your condo fees (if applicable). These costs must be no more than 39% of your income. The calculations show that to purchase the same home after the rule change, the minimum income to qualify must be on average 23% greater than previously required.

The images below highlight the average home price in different regions across Canada and the income required to afford the home before and after the new mortgage rules. For example, to get a mortgage for the average Toronto home costing $755,755, you would have needed a household income of $116,023. With the new mortgage rules, you must now have a household income of $144,946—a 24.93% increase! Click through the infographic to find out how much you need to make to afford the average home in your city!

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