Today, October 17, 2017, the Office of the Superintendent of Financial Institutions (OSFI) released revised guidelines for the mortgage industry. Canada’s top banking regulator floated a similar version of these rules earlier this summer in draft form, but today’s release makes them official, effective January 1, 2018. Current contracts will not be impacted before this date.
Among the major new rules is a requirement to stress test uninsured borrowers. Previously, only insured borrowers had to undergo such a test.
What are the new mortgage rules Canada 2018 changes?
The new rule changes now require the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada (4.89% today) or the contractual mortgage rate +2%.
For example, take an average fixed rate of 3.39% plus 2%, you will have to qualify for and show that you can make a payment at 5.39%. This equates to a 20 – 25% reduction in your borrowing power in terms of what you can qualify for.
Who is impacted by the OSFI mortgage stress test?
- Every homebuyer with a down payment greater than 20%!
- Everyone who wants to access equity in their home to refinance; this includes my clients who want to keep their property, refinance, and/or buy another property.
- Everyone who is looking to refinance their mortgage in the near future.
An example of the new mortgage rules in play
John is looking to purchase a home valued at $600K, with 20% down. The qualifying mortgage amount is $480K. As of January 1, 2018, for the same home, John would only be able to qualify for a mortgage amount of $380K, a $100K reduction in what he can qualify for today.
If you are looking to buy, refinance or restructure your mortgage within the near future, we should talk as these rules could affect your borrowing power.
These guidelines will officially go into effect January 1, 2018. Some lenders will start to adopt the new policies very soon and we are watching them closely.
Should you wish to discuss your mortgage options, please contact me at 604.614.6899.
