Mortgage Rule Changes for Jan 1, 2018

OSFI announced new mortgage rule changes this week that will be effective January 1, 2018. We have been asked every day since how this will actually effect our clients.

Basically now the stress-test that was previously only applicable to high ratio (less than 20% down) mortgages will now be applicable to people with more than 20% down. The stress test requires us to prove that the client qualifies at the higher of either the bank of Canada’s 5-year posted mortgage rate (currently 4.89%) or the contract rate + 2%.

Client’s will not be required to pay the interest rate we are qualifying them at, they just have to prove that they can afford this higher rate in order to qualify.

For many clients with a 20% or higher down payment if they purchase after January 1, 2018 they will qualify for a maximum mortgage amount of approximately 20% less than what they qualify for today. This means a client today that is approved for a $500 000 mortgage will be approved for only $400 000 after January 1, 2018.

Current mortgage rules already have the stress test applying to mortgages that are variable rate or fixed at any term less than 5 years. Potentially these clients may see a 5% reduction in their qualification amount as their contract rate + 2% (new rule) would likely be higher than the bank of Canada posted rate.

Another thing to consider is that OSFI regulates Federal lenders so there may still be opportunities for clients to be approved with provincially-regulated lenders until they are required to follow similar guidelines. As always, the mortgage market is complicated and ever changing. If you need help considering your options or want to know what options we have amongst our 57 different lenders we would be happy to review them with you.