I heard an interesting fact today about the financial state of first time homebuyers: According to reports, 75% of 18-34 year old first time homebuyers would be in trouble if their paycheck was delayed one week.
That's huge. Mortgages are expected to rise up to 3 percent over the next two years. Will we be faced with an influx of foreclosures when mortgage rates rebound?
I certainly hope not and there are changes currently being introduced to avoid such an issue. One such change is documented in a recent news article:
"Mortgage loans will be income-tested against the five-year posted interest rate, as opposed to the three-year rate currently used. According to TD Financial, the current five-year closed variable rate is 2.25 per cent, but people must have enough income to pay the three-year fixed rate of 4.3 per cent, to prove they will be able to handle future rate increases. Under the new rules, you will need to make enough income to pay the five-year rate of roughly 5.5 per cent. With the TD example, you will need annual household income of $68,838 rather than $59,626 to get a mortgage on a $337,000 home." (Toronto Real Estate News)
Another change is the reduction of refinancing from 95% of house value to 90%. This is where I feel the aforementioned group of financially unstable new homebuyers will have trouble. That extra 5% of equity when even a single paycheck is a setback could prove to be the straw that breaks many a camel's back, so-to-speak.