On October 17 2017, the Office of the Superintendent of Financial Institutions (OSFI) introduced new rules on Mortgage Lending.
The changes will go into effect on January 1, 2018, and will require conventional mortgage applicants to qualify at a new minimum rate, or “stress test” for uninsured mortgages. The new qualifying rate will be based on the Bank of Canada’s five-year benchmark rate or the lenders mortgage interest rate + 2%, whichever is greater.
This is a implemented change for all regulated financial institutions. As a result, some borrowers looking to purchase a home or refinance may experience a reduction in the total principal amount they are qualified to borrow.
What do borrowers need to know?
Expect the average Canadian’s home purchasing power for a given income to be reduced 15-20%. It is very important to have a pre-approval in place before starting to look for a property.
Here’s an example of the impact the new qualifying rate will have on the maximum mortgage proceeds and home purchase price.
Amounts are based upon a combined Canadian family income of $75,000, 5-year fixed term mortgage at a contractual rate of 3.39%, 25-year amortization, $100,000 available for down payment and $700 in other monthly debt obligations:
| Up to December 31, 2017 | After January 1, 2018 | |
| Target Rate | 3.39% | 3.39% |
| Qualifying Rate | 3.39 | 5.39 |
| Max Mortgage Amount | $400,000 | $325,000 |
| Available Down Payment | $100,000 | $100,000 |
| Home Purchase Price | $500,000 | $425,000 |
A buyer’s maximum mortgage amount will be influenced by other factors including product and term selected, amortization period, other debt obligations, and credit score.
How will Lenders manage in-flight applications?
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. |
Please contact our office for additional information