Edward Kowgier

Edward Kowgier

Sales Representative
CENTURY 21 Heritage Group Ltd., Brokerage*
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  • 905-883-8300
  • 905-883-8301
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2018 Mortgage Rules Changes

 

The Office of the Superintendent of Financial Institutions (Canada's banking regulator) has published the final changes to its guidelines for residential mortgages aimed at taking some of the risk out of the market, including a new stress test for buyers who don't need mortgage insurance. The revised guidelines will come into force January 1, 2018.

Under the changes, all homebuyers even those who don't require mortgage insurance since  they have a down payment of 20 percent or more will have to prove they can continue to make payments if interest rates rise above the five-year benchmark rate published by the Bank of Canada or 2 percent higher than their contracted mortgage rate, whichever is higher.

Other changes include restrictions on co-lending, or bundled mortgages -- in which federally regulated lenders pair up with unregulated providers to finance a property -- aimed at ensuring financial institutions do not circumvent rules that limit how much they can lend. Federally regulated financial institutions must also establish and adhere to loan-to-value ratio limits that are updated as housing markets and economic dynamics evolve.

While the country’s banking regulator has set January 1, 2018, as the date for new stress tests to take effect, the expectation is that many federally regulated lenders will usher in the changes before then, some of the lenders may start adding the stress-test requirements in December.

RateHub.ca suggests it could cut a family’s purchasing power by up to 21 percent, once the new test is in place.

What this means for your mortgage

Here’s how the rules would play out for a family with $100,000 in annual income, according to numbers provided by Ratehub.ca, mortgage rates and credit cards comparisons site. Let’s consider a  scenario in which the family is offered a mortgage rate of 2.83 percent, which is more than two percentage points below the current Bank of Canada five-year benchmark of 4.89 percent.

If they were to apply for a mortgage today, with 20 percent down payment, a five-year fixed mortgage, and a 25-year amortization period, they would be able to afford a home worth $726,939.

If they were to apply for a mortgage on or after January 01, 2018  they would be able to afford only $570,970, with a 20 percent down payment.

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