New mortgage rules 2018 “Stress Test” and how it affects your borrowing capability

What does all this mean to borrowers?

Many of the changes that are coming in January 2018 have already been implemented with insured mortgage back in Oct 2017.  The new guidelines are not affecting borrowers who are putting less than 20% down (these are insured mortgages), the rule changes will affect those who are putting 20% down or more.  Prior to the changes our clients would be able to qualify for a mortgage (if putting 20% down or more) at the 5 year contract rate rather than the greater of the Bank of Canada Benchmark or contract rate +2% (see chart below for examples).  This will be the biggest change for the uninsured mortgage borrowers as after the changes January 2018 you will be held to a “Stress test” as the insured mortgage borrowers already are subject to.   This is considering purchases AND REFINANCES.

Is it all doom and gloom?

NO!!  When the changes in October 2017 came down many of our clients were just as nervous as many are today about how they will now qualify.  Our experience was only 15% of our clients no longer qualified for the mortgage they were requesting prior to the changes.

How can I be sure that I am protected from not qualifying to purchase or refinance after January 2018?

Allow us do a no obligation free look.  We can look at your existing mortgage and see if there is anything you should change prior to January and pre-approve you for a new mortgage that is held for 120 days under qualifying rules today.  This means if you are looking to purchase in new year you will be able to fit under the umbrella of pre-rule changes.  Take a moment to send us your updated information.  We will look at multiple options to ensure you are not ill prepared for the changes coming next year.

https://harmonymortgage.ca/application-form/

The Office of the Superintendent of Financial Institutions (OSFI) issued a revision to Guideline B-20 on October 17, 2017.

OSFI is implementing these changes for all federally regulated financial institutions. As a result, some customers looking to purchase a home or refinance may experience a reduction in the total principal amount they are qualified to borrow.

 

Up to December 31, 2017 After January 1, 2018
Target Rate 3.39% 3.39%
Qualifying Rate 3.39% 5.39%
Maximum Mortgage Amount $400,000 $325,000
Available Down Payment $100,000 $100,000
Home Purchase Price $ 500,000 $425,000

 

A customer’s maximum mortgage amount will be influenced by other factors including product and term selected, amortization period, other debt obligations, and credit score.

Changes to existing policies and procedures may impact applications initiated before or after January 1, 2018.

Timeline: Pre-Approval: Purchase Transactions or Refinances:
Before January 1, 2018 Pre-Approvals committed before January 1st will remain valid up to 120 days following the initial credit decision. Approved applications closing before or beyond January 1st will remain valid; no re-adjudication is required as a result of the qualifying rate update.
On and after

January 1, 2018

Any material changes to the request post January 1st may require re-adjudication using updated qualifying rates. Material changes to the request post January 1st may require re-adjudication using updated qualifying rate rules.

based on current 5 year rate of 3.39% which is an average of current 5 year fixed each lender will vary contact us for current rates and terms.