Purchase and refinance rules are changing – and fast. If you’re looking to buy and will have more than 20 per cent down, or if you are considering refinancing, then you might want to do so before January 1, 2018. Why? On October 17, the Office of the Superintendent of Financial Institutions (OSFI) released new guidelines for residential mortgage underwriting at all federally regulated financial institutions. Beginning January 1, 2018, a new ‘stress test’ will be applied to all new conventional mortgages – and not just those mortgages that require mortgage insurance (down-payment or equity of less than 20 per cent).
The so-called “stress test” is designed to protect homeowners should interest rates rise. Lenders will be obligated to qualify all new conventional mortgages at the greater of the Bank of Canada’s five-year benchmark rate (currently 4.89 per cent) or the contracted rate plus 2 per cent. So if your contract rate is 3.29 per cent, you will be qualified at 5.29 per cent.
Here’s what that might mean for you:
Your payments will always be based on your contract rate so this new rule isn’t costing you more. However, the new rule might change how much mortgage you qualify for. If that’s the case, you may need to look at a less expensive home, save up for a larger down-payment, or reduce any other debt. Or we can take a look at a variable rate mortgage that lowers your qualifying rate (if the rate plus 2 per cent is less than the benchmark 4.89 per cent) and has the option to convert to a fixed mortgage.
Here too, your actual mortgage payment will not be affected. But the new rule could slow you down by making it more difficult to qualify for your refinance. You may need to wait and accumulate more equity, or look at a lower-rate variable mortgage. If that refinance is important to securing your own financial health, get in touch ASAP.
This more stringent qualifying requirement will not apply to mortgage renewals. If you go shopping for a better deal with a new lender, however, that will require that you re-qualify… and the new rule will kick in for you too. It still is very important that we review your options together.
New mortgage qualifying for purchases with 20 per cent down.
Jan 1, 2018
For illustration purposes only. Based on 25 yr amortization, 20 per cent down purchases, 5 yr term, qualifying rate 3.29 per cent today and 5.29 per cent January 2018. Does not include property taxes, heat or condo fees. OAC.
Going forward, we’re here to work with you early in the process to make sure you are fully prepared for the new purchase and refinance rules. We also have access to non-federally regulated lenders that do not fall under this new guideline. We’re always here to answer your questions, so feel free to call or email at any time!
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Rasha Ingratta & Mortgage Associates
By Mortgage Intelligence
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