Yesterday, the Office of the Superintendent of Financial Institutions (OSFI) announced new guidelines for residential mortgages that are set to come into effect as of January 1, 2018. Uninsured mortgages will now be subject to a higher qualifying rate (or mortgage “stress test”), which, simply put, means that mortgage borrowers will qualify for less moving forward. The aim of this new regulation is to facilitate long-term mortgage affordability – this will help ensure that homeowners are not struggling to make their mortgage payments if interest rates rise in the future.
Who is Affected by this Change?
These new guidelines apply only to those putting down a minimum of 20 percent on their mortgage – these are called uninsured mortgages as opposed to insured/high-ratio mortgages where homebuyers put down less than 20 percent.
What will the New Qualifying Rate be?
Mortgage applicants will have to qualify at the greater of:
- The current ‘Conventional Mortgage – 5 year’ interest rate posted by the Bank of Canada; or
- The interest rate offered by your Lender, plus 2 percent
Should I put Less than 20 percent Down on my Mortgage?
While it may seem as if these new mortgage rules are removing the incentive for potential homebuyers to save up 20 percent for their down payment, those putting down less than 20 percent have been required to qualify at the same 5-year Bank of Canada rate as above since October 2016. There are also additional costs and considerations when you put less than 20 percent down on your home, such as CMHC fees.
Your Mortgage Broker can help you look at the numbers to determine your best option moving forward, as every financial situation is different and there is no one-size-fits-all solution for every potential homebuyer.
How Can I Avoid these Qualification Standards?
If you are currently in the process of looking for a new home, uninsured mortgage applications submitted before January 1, 2018 will not be subject to these new qualifying standards. If you are ready to proceed with a mortgage application, you can apply through our website.