If a house is on your wish list for 2018, you may have heard about changes to the qualification rules for mortgages. There are new rules in effect as of January 1, 2018 that will affect your purchasing power, so it is important to understand these changes before beginning the search for your dream home.
In short, the Office of the Superintendent of Financial Institutions (OFSI) has put new rules into place that apply to all federally regulated financial institutions. These rules, or the “stress test” as it has been called, require all people obtaining conventional mortgages to qualify at the greater of a rate 2% higher than their contract rate or the Bank of Canada’s five-year benchmark rate. Furthermore, this test applies even to uninsured mortgages, which would be for those people who have a down payment of 20% or more.
What does this mean for you? Essentially, the new rules reduce the size of the mortgage you are able to qualify for, which results in you having less money (between your down payment and mortgage) to spend on a home. In some cases, your purchasing power could be reduced by roughly 20% so this could result in having to settle for a less expensive house than you could have been able to purchase prior to January 1, 2018.
For those looking to refinance, the guidelines will apply to new mortgages but not renewals. While this may seem like a positive (i.e. that financial institutions are not under obligation to apply the stress test for existing borrowers who wish to renew their mortgage), these institutions may end up charging a higher interest rate (knowing that a client could not qualify under the stress test and be able to move to a different lender).
If you are looking to purchase or refinance and need assistance, feel free to contact me. I can assist with the transaction, as well as provide referrals to other real estate professionals, including mortgage brokers and real estate agents.