B20 DEMYSTIFIED

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=

5.49%

Monthly Payment $1,994.98 $2,439.24
Minimum Income Required to Qualify $76,724.12 $90,052.14

E & OE – rates shown are subject to changing market conditions and OAC

To recap:

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.

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