10th November 2017
The office of the Superintendent of Financial Institutions (OFSI) announced some regulatory changes on October 17, 2017. There were 3 changes announced, but it was the introduction of a qualifying rate stress test to all non-insured mortgages that will have the most impact on consumers.
Home Buyers with a down payment of 20% or more must now qualify at a new minimum qualifying rate, which is the greater of the five year Bank of Canada Benchmark rate or the lender contractual rate +2%
What does this mean?
The biggest impact will be on the amount in which the homebuyer will be able to qualify. For example, if a homebuyer needs a $400,000 mortgage, has 20% down payment and a 25 year amortization, here is the difference:
|Actual Rate to be Paid:||To Qualify:|
|Mortgage Amount $400,000||Contract rate of 3.49%||The greater of the two: 4.99%, the current BOC Benchmark Rate OR 3.49% contract rate +2%, WHICHEVER IS HIGHER=
|Minimum Income Required to Qualify||$76,724.12||$90,052.14|
E & OE – rates shown are subject to changing market conditions and OAC
Uninsured Mortgages- Homebuyers/owners will now have to qualify for a mortgage using the benchmark rate, which is the Bank of Canada rate (currently 4.99%) or the lender rate + 2%, whichever is greater.
Insured Mortgage- Homebuyers must qualify using the Bank of Canada Rate (again, currently 4.99%). This came into effect in 2016 and has not been affected by the recent rule changes.
Can you still refinance your home? – yes. Homebuyers still can refinance up to 80% of the value of the property but the new stress test applies.
What if you have a contract written prior to October 17, 2017? – This depends on the lender. Some lenders will use current rules up to January 1, 2018. Others will implement the necessary changes before this deadline.