The government agency that regulates mortgages in Canada (The Office of the Superintendent of Financial Institutions) made several dramatic changes today that everyone should be aware of. If you’re planning on moving or refinancing in the near future, then these changes could impact your ability to qualify for a mortgage.
The most important change that will get the most attention and affect the most people will require borrowers with 20% down payment or more to qualify for mortgages at a significantly higher rate. Instead of qualifying for mortgages at the contract rate (currently around 3.30%), they will qualify at the greater of the benchmark rate (currently 4.89%) or the contract rate + 200 basis points (this would be about 5.30% today). This may sound familiar as a similar “stress test” was put into place last October that impacted all insured mortgages (typically mortgages with less than 20% down).
The new “stress test” will take effect January 1, 2018. For anyone looking to buy a property or refinance in the coming months, it would be wise to look into your options now to find out if the new qualifying rules will impact you. We expect that the new rules will decrease how much an applicant will qualify for by about 20%. It should be noted that OSFI will not apply the more stringent requirements to mortgage renewals. Homeowners will not be required to re-qualify when their mortgage comes up for renewal.
Last year’s mortgage rule changes have had a fairly significant impact on homebuyers, specifically first time homebuyers. It is becoming increasingly difficult for young buyers to obtain their first home, especially given the rate at which home prices are increasing. We do expect these new changes will have a substantial impact on buyers and owners based on what we have seen in the past year. With that being said we will adjust to these new rules, just like we have in the past, and we will continue to do everything we can to make the mortgage process as simple as possible for all clients.