Are you thinking about buying a home this year? Are you a first time home buyer? Are you a Canadian homeowner?
If the answer is ‘yes’ to any of these questions, there is some important information you need to know about mortgages. As of January 1st, 2018, the Superintendent of Financial Institutions (OSFI) implemented three new mortgage rules which are going to affect home buyers. Here are the three mortgage rule changes that you need to know about:
Mortgage Change #1
A qualifying rate stress test will be applied to all non-insured mortgages.
Non-insured mortgage consumers must now qualify using a new minimum qualifying rate. These mortgage consumers are buyers with a 20% or greater down payment on a property.
The minimum rate at which these consumers can now qualify must be greater than the 5-year benchmark rate set by the Bank of Canada or the lender’s mortgages rate plus 2%. Prior to 2018, the homebuyer would qualify based on the rate offered by the lender.
*Any federally regulated lender will have to adhere to the stress test ruling. This means that all mortgage lenders in Canada will have to adhere to this ruling, except for private lenders or credit unions.
How does this change affect consumers?
The major impact of this particular change will be the rate required to qualify for a mortgage if you are a consumer with a downpayment of 20% or more. These consumers will still be able to qualify for their mortgage — if they pass the qualifying stress test.
Mortgage Change #2
Lenders will be required to enhance their loan-to-value measurement and limits to ensure risk responsiveness.
Lenders will have to adhere to the loan-to-value ratio, also known as LTV, meaning the size of the mortgage compared to the value of the property securing the loan. The LTV change is a reflection of the housing market and economic environment.
Mortgage Change #3
Restrictions will be placed on certain lending arrangements that are designed (or appear designed) to avoid loan-to-value limits
Mortgage lenders are unable to arrange a mortgage with another lender or arrange a combination of a mortgage bundled with other lending products.
For example, if a potential home buyer applies for 80% loan-to-value mortgage and the lender can only approve 65%, the lender would partner with another lender for the additional 15%. Thus, the original lender would bundle the loan-to-value mortgage with another lender for an 80% loan-to-value loan. This is no longer allowed to happen, as of January 1st, with the new mortgage rules being implemented by OSFI.
Do I still have the option to refinance my home?
Yes, homebuyers will still have the ability to refinance up to 80% of the value of their property. Also, you will still have to pass the same stress test mentioned above (see Change 1): the 5-year benchmark rate set by the Bank of Canada or the rate of the lender plus 2%.
If you are thinking about buying a property this year, it is important that you understand these new mortgage rules, which will affect you as a homebuyer. Speak with one of our agents or mortgage brokers today for more information.