Canada’s banking regulator introduced new rules on Tuesday that extends the requirement for a mortgage – a.k.a ‘stress test’ – (even for uninsured mortgages, which have down payments of 20 per cent or more) to all homebuyers.
The guidelines will take effect January. 1, 2018 and apply to new mortgages as well as mortgage renewal applications if borrowers switch lenders. Financial institutions won’t be obligated to apply the test at mortgage renewal for existing borrowers, although they may choose to do so.
The new B-20 Guideline 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%.
The above rule change is the one with the most impact for most buyers. Particularly for first-time and move-up homebuyers. For example; let’s say a buyer has 20% down for a new purchase, or is looking to refinance their current mortgage to clean up some debt (with current 5 yr fixed at 3.29%), they would need to qualify with a “stress test” rate of 5.29% (3.29% + 2.00%).
Will this new guideline have a 'significant dampening effect' on the market?
This is potentially more wide ranging and it will dampen the housing market in 2018, probably more significantly than we saw (with) the earlier federal measures. A survey by industry group Mortgage Professionals Canada showed the requirement would disqualify about one in five potential home buyers.
The Ontario Real Estate Association (OREA) issued a statement calling the OSFI changes “overkill” that “will hurt middle class families and punish careful savers most.”
Personally, I think it’s time for governments to hit the brakes on policy interventions and take a ‘wait and see approach’. It will be interesting to see how this will affects buyers’ mentality this Fall.
Here’s a few good FAQ’s:
1) Will the rule changes affect my clients current purchase and mortgage already approved with a bank/lender that is set to close after December 31st?
A. No, it will not affect your client. Banks/lenders will honour and close on all deals already approved and closing within the regular parameters of 120 days from the client’s approval date. Ex. Client’s purchase agreement is signed and dated October 15, 2017, and has a set closing date of January 25, 2018. The new rules will not impact this client.
2) Will the rule changes affect my client’s current pre-approval that is already in place with a bank/lender if they do not have an accepted offer on a new home by December 31, 2017?
A. Yes. If your client does not have an accepted offer dated before January 1st, 2018, they will need to re-qualify under the new guidelines.
3) Do the new rules affect our client’s wishing to just renew their mortgage with their existing bank/lender?
A. No. If your client does not require to increase their mortgage(called a “refinance”) and just want to renew their mortgage, the new rules will not impact their ability to do so.
4) Do the rule changes affect a client’s ability to increase their current mortgage (known as a “refinance”)?
A. Yes. Any change to a client’s mortgage will require them to qualify under the new rules.
5) Does it impact clients who have less than 20% down(also known as a “High Ratio” or “CMHC” insured mortgages).
A. No. These clients are bound by the rules that were set last year, which requires us to qualify them under the Bank of Canada “Stress test” rate of 4.89%.
6) Do these rule changes apply to ALL lending institutions?
A. No. The rules were put in place for all lending institutions that are federally regulated and governed (all banks and trust companies). There are some provincially governed institutions, mainly the credit unions. While credit unions are not federally regulated, it is likely they will adopt the new rules….so while they are not REQUIRED to do so, it is likely they will.
These FAQ’s do not answer ALL the questions out there, so please contact your mortgage adviser for more details or Mahnoush Kohpaei from the Tribe Financial Group:
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