By now, you’ve likely heard about the new mortgage rules coming into effect January 1st, 2018. But, it’s important that you have the correct information on hand.
While the changes aren’t applicable until the New Year, you must have a firm deal in place – not just a preapproval/rate hold – before January 1st. In other words, you need an offer to purchase and an approval if you’re buying, or a refinance approval to access home equity before the deadline.
In total, the Office of the Superintendent of Financial Institutions (OSFI) announced three new changes to the mortgage rules that govern all federally-regulated lenders, including:
- Minimum qualifying rate for uninsured mortgages
- Expectations around loan to value (LTV) frameworks and limits
- Restrictions on transactions designed to work around these LTV limits
Greatest impact on uninsured mortgages
The first change is the most impactful. This affects homebuyers who’ve saved more than a 20% down payment – or are looking to refinance their current mortgage. It’s now estimated that about 5% of new mortgages will be affected by this particular rule.
In January, mortgage applications for uninsured mortgages will be subject to a new ‘stress test’ using the higher qualifying rate between the Bank of Canada’s five-year benchmark rate (currently 4.99%) or the contractual mortgage rate +2% (5-year fixed rate at 3.19% +2% = 5.19%).
In other words, if you fall into the uninsured mortgage category, you’ll qualify for less money to put towards your home purchase in the New Year.
Previously, only borrowers who had less than a 20% down payment (high-ratio mortgage borrowers) were subject to a stress test.
We have time – if you act quickly – to examine your current mortgage needs and decide if you should make a purchase before the New Year or refinance now to free up money for the holiday season, home renovations, a winter vacation, or to use however you choose.
Have questions about the new rules and how they may affect you? Answers are just a call or email away!
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