You’ve likely been bombarded with information over the past few weeks since the Office of the Superintendent of Financial Institutions (OSFI) announced three additional changes to the mortgage rules that govern all federally regulated lenders.
The mainstream media has a way of making everyone feel like the sky is falling every time new rules are announced, market or real estate sales data is released, and the list goes on. That’s why it has never been more important than now to talk to your mortgage professional to understand precisely how these rules may impact you and, if so, how we can manage your real estate needs moving forward.
This latest round of changes will take effect on January 1st, 2018, and focus on:
• Minimum qualifying rate for uninsured mortgages
• Expectations around loan to value (LTV) frameworks and limits
• Restrictions on transactions designed to work around these LTV limits
Uninsured mortgage changes
Since the first change will have the greatest impact, it warrants further discussion. This affects homebuyers who’ve saved more than a 20% down payment.
In the New Year, mortgage applications for uninsured mortgages will be subject to a new ‘stress test’ using the higher qualifying rate between the Bank of Canada’s five-year benchmark rate (currently 4.99%) or the contractual mortgage rate +2% (5-year fixed rate at 3.19% +2% = 5.19%).
In other words, if you fall into the uninsured mortgage category, you’ll qualify for less money to put towards your home purchase as of January.
Previously, only borrowers who had less than a 20% down payment (high-ratio mortgage borrowers) were subject to a stress test.
Have you heard about the loophole?
After OSFI released details about the new rules, the mortgage industry pointed out that they contain a loophole that lenders could exploit to qualify more mortgages once the new rules come into effect.
OSFI didn’t regulate the length of the amortization used in the new qualifying calculation. While insured mortgages must be qualified at a maximum of 25 years, loan providers could extend amortizations from 25 to 35 years for uninsured mortgages, potentially creating a smaller monthly payment that would qualify more buyers.
Are you thinking of buying a property in the near future? Let’s discuss your options. Answers are just a call or email away!