AGGRESSIVE CHANGES TO MORTGAGE APPROVALS JAN 1st TO KNOCK OUT 20% OF YOUR BUYING POWER
In an effort to further soften the once scorching hot housing market and protect Canadians against buying homes they can’t afford as interest rates rise, the Office of the Superintendent of Financial Institutions (OSFI) has some aggressive mortgages changes coming for residential mortgage qualification beginning January 1, 2018. With the changes being implemented, effects will be felt by all people who are seeking mortgages; not just first time home buyers and those who require insured mortgages. For some, these aggressive changes will mean buying a home is no longer possible and for others, their buying power will be reduced by a whopping 20-percent!
The Stress Test that will Make your Blood Pressure Rise
A mortgage stress test is used to determine whether or not you can afford your payments should interest rates rise during your term. Before the new changes, this test was only used for first time home buyers or refinancing loans with less than a 20-percent down payment requiring mortgage insurance- known as high ratio mortgages. Under the new rules, even uninsured mortgages are now targeted. With a universal stress test based on the Bank of Canada rate (currently 4.64%) or the contract rate plus two percent, all potential home buyers or refinancers are going to feel the changes. Here’s how they will affect you:
First-Time Home Buyers and Insured Mortgages
Rule applies for all mortgages with less than 20-percent down. While the stress test for this group is not new, OSFI has now capped the amortization period at 25 years. While this may sound okay, the difference in the monthly payment on a 25-year and a 30-year mortgage is quite significant and may put your mortgage dreams on hold until you can save more towards a down payment. At minimum, you are likely to find that your buying power will shrink by roughly 20-percent since you now have to qualify based on higher percentage points than the offered contract price.
Before the new changes being implemented, uninsured mortgages did not require the client to pass a mortgage stress test. With household debt at all-time highs, OSFI has now mandated the test be applied universally. While this won’t affect the amount of your payment, it may mean that you qualify for as much as 20-percent LESS mortgage once your maximum is calculated on the higher percentages!
It’s not Over Yet
While the stress test is the biggest change in the new regulations, there have also been mandates imposed on federally-regulated lenders that will affect all mortgage applicants. These include creating and adhering to practices to reduce the risk of clients defaulting on mortgages in higher-priced or “hot” markets and outlawing the arrangement of financing outside of a conventional mortgage to qualify a client who has less than 20-percent down, for an uninsured mortgage.
There IS a Bright Side!
These new regulations may seem grim and discouraging, but your Referral Mortgages team of expert mortgage professionals are ready to help! Let’s talk about your best options for beating the deadline or planning the best way for you to work with the new regulations so you get maximum buying power and a mortgage you can afford. Contact us today to learn how!