The Office of the Superintendent of Financial Institutions (OSFI) released new guidelines for the mortgage industry this past Tuesday. The new rules will come into effect January 1st, 2018. Learn more here about the new mortgage rules and how they will affect you.
At the top of the list of changes, is the introduction of the stress test to all buyers regardless of the amount of down payment. Currently, only those with insured mortgages need to qualify using the stress test regardless of their actual mortgage rate. The stress test is where a benchmark rate, the 5 year posted rate, is used to qualify you. This rate is currently at 4.89%.
With a down payment of under 20%, by law, a borrower must purchase mortgage insurance. The borrower pays a premium for this insurance however the beneficiary is the lender to protect against the borrower defaulting. There was an increase to the premium percentages earlier this year.
The current stress test has had a noticeable impact on if you qualify for a mortgage, and if so, what price you qualify for.
The stress test is there to protect clients against rising interest rates. Under the new mortgage rules, a client will have to qualify at either the Bank of Canada posted rate or a rate 2% higher then their rate offer, whichever is higher.
Many feel the new rules are not necessary. The CEO of Mortgage Professionals Canada, feels the current rules in place are already making it challenging for first time buyers to purchase and that more time is needed since the last tightening of mortgage rules to let the marketplace breath and figure out its own balance.
When looking at a mortgage affordability calculator, a $80,000 income and 20% down payment under the current rules would equal a house price of about $612,500. Come January 1st, this price would be reduced to $495,000. A house price difference of about 20%.
If you are thinking of buying a house in the next year, now is a great time to see how the new mortgage rules they will affect you or to seek options before the new rules come into effect.