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Mortgages for immigrants


If you are planning to buy a home in Canada after you immigrate here, then you need to make sure that you have the latest information regarding Canada’s mortgage rules. As of January 2018, prospective homebuyers in Canada will be subject to a new mortgage stress test.


What do the new mortgage rules mean for me?


Towards the end of 2017, new, tighter mortgage rules were introduced in Canada. These were specifically targeting those looking to buy a home in Canada with uninsured mortgages (those putting a down payment of 20 percent or more). This stress test is being applied to everyone, both those born in Canada, and immigrants looking to buy a home. Now that the stress test is in effect, as of Jan. 1, 2018. Each uninsured borrower will need to qualify for a mortgage at a higher rate. This rate is calculated against a forecasted 5-year interest rate increase which is now at 4.99%.

According to the Bank of Canada, this new stress test will stop 10 percent of purchasers from buying a new home.


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 Why has the stress test been introduced


The stress test is designed to make sure that those who are buying a home in Canada will be able to afford a new home after interest rates have increased over time. This may seem unfair to many, as the stress test effectively decreases their buying power. There has been concern that the housing market in Toronto and Vancouver has been increasing rapidly, and these measures may also help to cool the market.

Even though many homebuyers in Canada are a little disheartened to learn that they are not able to buy the homes that they initially hoped to, this stress test will protect you from purchasing a home that you cannot afford as interest rates increase. As interest rates are expected to increase from 2018 to 2019, many would have been put under significant financial stress without this protective measure.

One important impact of this for immigrants to Canada is that by reducing buyers’ purchasing power, the stress test will likely result in further demand for entry-level properties, namely the condominium segment, which could continue to drive prices higher, which could further limit what kind of property you can afford.


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So, how much can you really afford?


The harsh reality is that the new rules will reduce a homebuyers’ purchasing power substantially. In some cases, decreasing the overall price of a home they can afford by tens of thousands of dollars. This is not necessarily a bad thing, even though you may not be able to get your dream home straight away, you will certainly be buying a property that you will be able to afford in the long run. It is always recommended that you don’t push your buying power to the limit as you arrive in Canada anyway, as you may need those funds for other costs in your first few months and years in Canada.