Canada’s banking regulator, OSFI, unveiled its mortgage underwriting standards this month—Guideline B-20—that will further tighten lending standards and affect borrowers and lenders.
How does it affect you?
Overview of Changes effective January 1, 2018
A new minimum qualifying rate (stress test) for uninsured mortgages (20% or more down): The minimum qualifying rate for uninsured mortgages (buyers with a 20% or greater down payment) will be the greater of the five-year benchmark(4.99%) rate published by the BoC OR the contractual mortgage rate +2%, whichever is greater.
How does this affect the mortgage consumer with a down payment of 20% or more?
The biggest impact will be the amount in which the homebuyer will qualify to purchase. Previously, the homebuyer qualified at the rate offered by the lender. Now, the homebuyer must qualify at the benchmark rate set by the Bank of Canada (currently 4.89%) or the rate plus 2%, whichever is greater. This applies for all terms, fixed and variable. The effect of the change will decrease affordability by 20% meaning that as a buyer you will get 20% less house!
What if you put less than 20% down payment on a house?
All insured mortgages were subject to the stress test as of November 2016. The Bank of Canada benchmark rate is currently 4.99% and is used to qualify buyers who have less than 20% down or a high ratio mortgage or insured mortgage.
Is there still an option to refinance you current home?
Yes, home owners will still have the ability to refinance up to 80% of the value of their property. The change is that they will have to qualify on the stress test of the greater of the Bank of Canada Rate (4.99%) OR the rate plus 2% after January 1st. If you want to consolidate debt or take equity from your home, I suggest doing it prior to the changes as your qualifying amount will be affected. The new stress test means that you may not get the benefit of the full 80% depending on your debt ratios.
What if you want to purchase a rental or investment property?
If you are looking to purchase a second home or investment property you will have to qualify using the stress test as of January 1st. Your purchasing power is about to change, so don’t be disappointed, call us to review before January!
As always, I am here to answer any questions. If you'd like to reach out and see what your options are, please fill out the form below, send me an email (firstname.lastname@example.org), or call at 519-576-4869