On October 17, 2017, Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI) introduced new residential mortgage guidelines that will require all homebuyers to pass a financial “stress test” when applying for a mortgage. Until now, only those putting less than 20% down, and those with less than a five-year term, have had to meet the OSFI stress test requirements; however, things are changing and it’s important for all home buyers to understand the evolving world of mortgages in Canada.
The new minimum qualifying rate (or ‘stress test’, as it is called) will take effect on January 1, 2018 and have the potential to reduce the amount of mortgage Canadians will be able to qualify for going forward.
Because the Bank of Canada’s minimum qualifying rate is greater than the five-year benchmark rate, or the contractual rate plus 2 percentage points, the total mortgage amount that one can borrow will be reduced by about 21 percent, or more, says a report by Ratehub. Ultimately, this is safer for the borrower as well, but it will impact how much home buyers will be approved to purchase after 2017. The anticipated result is an upswing in home purchases before the end of this year as, after the new year, buyers will have to decrease the mortgage amount qualify for.
What Does this Mean for New Home Buyers?
Arming yourself with information prior to purchasing your new home will help give you a picture of how much home you can buy under the latest rules. Federally regulated lenders must apply these rules to all new mortgages and to mortgage renewals when borrowers change lenders, and may choose to apply the rules when existing clients apply for a mortgage renewal.
This being the case, for those who have qualified for a mortgage already but have not built or bought their new home yet, it is advisable to look into the rate-hold time of your lending institution. If you have locked into terms with a major lending institution, you will likely be safe from re-qualifying.
With the new rules officially taking effect January 1, 2018, and some lending institutions opting to roll out the new guidelines in December, now is a perfect time to find the home, and mortgage, that is right for you.
Note: Provincially-regulated mortgage lenders, such as credit unions, are not affected by the OSFI.