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As of October 17^th, 2016, Canada’s new federal mortgages rules came into effect to help protect the Canadian economy. These new rules provide protection by preventing Canadian consumers from taking on mortgages they can’t afford.

On Tuesday, November 1^st, Toronto-Dominion Bank released information to the lending industry that its prime lending rate moved from 2.7 percent to 2.85 percent. This was a strategy implemented to coordinate with new federal mortgages rules.

TD Bank raised its key prime rate up 15 basis points for variable-rate mortgage customers. This is a move that will affect Canadians with floating interest rate products. A floating interest rate product is a type of debt instrument, such as a loan, bond, mortgage, or credit that does not have a fixed interest rate.

A TD spokesperson said, “This will impact customers who hold variable interest rate mortgages, but there will be no impact for customers who hold fixed-rate mortgages. The increase only applies to the TD Mortgage Prime rate, which is the base rate for variable interest rate mortgages.”

TD is not the only bank that is affected by the new federal mortgages rules, it is predicted that other banks will follow in the same footsteps. What kind of changes should you expect from the new federal mortgages rules implemented on October 17^th, 2016?

What to expect from the new federal mortgages rules

Canadians who need a mortgage to purchase a home will have to take a mortgage rate stress test. The test measures an individual’s potential to continuously make payments if mortgage rates rose to the Bank of Canada’s five-year fixed mortgage rate. Canada’s 5-year fixed mortgage rate is the average of the rates posted by the big 6 banks of Canada and as of September 28, the rate was at 4.64 percent.

The stress test has a few other requirements that are looked at to measure a Canadian’s ability to buy a home. One requirement is that costs like mortgage payments, heat and taxes should take up no more than 39 percent of your income. Another requirement includes all other debt payments and the TDS (total debt service) ratio must remain below 44 percent.

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