OSFI – Canada’s banking regulator set new rules today revealing the final modifications to its mortgage underwriting standards—Guideline B-20— that will be in effect January 1st, 2018. Rules that will further tighten lending standards and will affect both borrowers and lenders.
The biggest change having the most impact is:
OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages.
- Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
What does this mean?
As a consumer, it means it just became a little harder to qualify for your mortgage come January 2018.
For example: A family with a $100,000 household income with a 20% down payment on a 3.09% 5-year fixed rate amortized over 25 years. Under the current rules, that family could qualify for a house worth $706,692, but after the new rules take effect in 2018, that family would only qualify for a house worth $559,896 because they will have to qualify on a much higher “stress test” rate of 5.09% (current contract rate +2%).
This stress test rate will apply to those buying new homes as well as those looking to refinance their current homes to access equity to pay off bills, make investments, or even to finance renovations.
If you are currently planning on buying a property with 20% down payment or more – you should verify with us at The Mortgage Advisors to see that you will still qualify after the new rules come into play. If you no longer qualify for the higher stress test rate, then you should make your purchase and get your mortgage commitment before the end of the year.
If you are currently a homeowner with more than 20% equity – you should look at your current mortgage and compare your options now. Once the changes come into play, you may not qualify to do those renovations, to make that investment, to pay off higher interest rate credit cards and debts, to help your child with their education costs, to buy that second property or quite simply access the equity available in your property.
Maybe you don’t need that equity right now – perhaps you should consider setting up a new mortgage with a line of credit attached, so you do have access to the equity when you need it without having to qualify under the new rules.
Today you have options; we can’t guarantee those same options will be available in the New Year. Please take the time to review your finances if you are, or are planning on becoming, a homeowner.