The other day, the Office of the Superintendent of Financial Institutions (OSFI) released revised guidelines for the mortgage industry, similar to the draft version released earlier this summer. These new parameters will take effect January 1, 2018.
OSFI said they will be holding information sessions through the fall to discuss implementation expectations. These new guidelines include a stress test for uninsured mortgages or mortgages with more than a 20% down payment or 20% in existing equity. This new stress test means that borrowers will be qualified at the greater of their contract rate + 2% or the five year benchmark rate published by the Bank of Canada, which is currently 4.89%.
To give you some numbers, per $100,000 in mortgages. Based on an interest rate of 3.29% with a 25yr amortization.
Mortgage Payment - $488.25 (3.29% with 25yr am)
Benchmark Rate Payment - $575.36 (4.89% with 25yr am)
Stress Test Payment - $598.22 (5.29% with a 25yr am)
Lenders determine how much money you can borrow by determining what percentage of your income can go towards your mortgage and debt payments. The new requirement will determine the mortgage payment based on the higher of the benchmark rate or stress test rate, even though your contract rate is 3.29%. This will reduce your maximum allowable mortgage by approximately 20%.
These are not the only changes made today, below is a summary of all the changes:
- A new minimum qualifying rate (stress test) for uninsured mortgages
- Lenders will be required to enhance their Loan to Value (LTV) measurement and limits to ensure risk responsiveness
- Restrictions will be placed on certain lending arrangements that are designed or appear designed to circumvent LTV limits.
The guidelines go into effect January 1, 2018. We will be watching them closely.
Information courtesy of Karen Pacheco, Mortgage Architects