It’s official, OSFI (Office of the Superintendent of Financial Institutions) has released their new mortgage regulations that will take effect as of Jan 1, 2018.
What are the New Rules?
The primary change is a new “stress test” for uninsured mortgages. Uninsured mortgages are when you have a down payment of 20% or more. The stress test requires someone to qualify at the higher rate of either the Bank of Canada rate (currently 4.89%) or the contract rate plus 2%.
If the contract rate you currently have is 3.14%, you will have to qualify at 5.14%. This means that you will still receive the 3.14% rate for your mortgage but you will only be able to get a mortgage amount that you could afford if the rate was at 5.14%.
Other changes announced relate to Loan-to-Value ratio measurements and limits lenders will now need to operate by.
What Does the New Stress Test Mean for Consumers?
Quick Example: A client who is earning $100,000 would be able to get a mortgage of about $506,000 on a 5 year term 30 year amortization 3.14% interest rate. Based on the new stress test, they would only be able to receive a mortgage of $400,000 if qualified at 5.14%.
On average, once the stress test becomes active, clients will be able to afford roughly 20% less than what they can afford today.
Impact on Housing Market
As expected, people suspect this will have an impact on the housing market. With people not being able to afford as much, demand for lower priced properties is expected to rise. Some experts have said that the housing market as a whole, primarily in Vancouver and Toronto, will either see a property price reduction to keep up with the current sales volume or see a reduction in sales volume as less people will be able to afford properties.
What to do?
Contact me today to learn more about the changes and find out how you may be impacted. The more you know the better you can prepare.
The official release from OSFI can get read here: http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/Pages/B20_dft_nr.aspx