New Mortgage Rules Effective January 2018

New mortgage lending rules have been introduced by the Office of the Superintendent of Financial Institutions (OFSI). These rules have taken effect as of January 1, 2018. The OFSI has set a new minimum qualifying rate, or a new “stress test”, for uninsured mortgages. As a note, an uninsured mortgage is a mortgage with a 20% or greater down payment. Anything less than that is considered a high ratio insured mortgage which qualifies at the Bank of Canada five-year benchmark rate (5.14%).

The new rules dictate that the minimum qualifying rate for uninsured mortgages is the greater of the five-year benchmark rate published by the Bank of Canada, or the conventional rate provided by the mortgage lender plus 200 basis points (or 2%). Simply put, though the borrower would not actually be getting this rate to calculate the interest on their mortgage. Instead, the rate is used to determine whether the borrower can still afford to make the monthly mortgage payments should the rates increase. As a result, it leads to a decrease in the amount that can be borrowed.

As a result of the new rules, borrowers are qualifying around 15 to 20% less compared to prior year which is significant, especially for first-time homebuyers. In addition, borrowers will need to pass the stress test regardless of how much money they’ve put down as the down payment. This is applicable to individuals who are looking to refinance or to purchase. However, if a mortgage is approaching its renewal date, as long as the mortgage balance is maintained the same with the existing lender, then a stress test is not required. A renewal form will simply need to be signed with the existing lender in order to continue with the mortgage.

To best illustrate the new rules, below is an example:

Say a borrower earns an annual income of $100,000 and is able to put a 20% down payment at a five-year fixed mortgage rate of 3.10%. This would normally qualify the borrower for a mortgage amount of $700,000 as an example. The current Bank of Canada five-year benchmark is 5.14%. Under the new rules, the minimum qualifying rate is the greater of the five-year Bank of Canada benchmark rate or the individual’s mortgage rate plus 200 basis points. In this case, the minimum qualifying rate would then be 5.14%. This only qualifies the borrower for $550,000.This results in $150,000 (or 21%) less in comparison.

How Ronin Mortgage can help you

Currently all borrowers in Canada have to pass the “Stress Test” if they’re borrowing from a financial institution. Ronin Mortgage can help you get the mortgage or other financial product you desire. Ronin Mortgage has access to variety of different bank type lenders, B Lenders and private lenders; lenders that do not have to follow the same rules. Mortgage rates are increasing. Let us help by putting a rate on hold for you while you are looking for your dream home. This way you are able to lock in a lower rate before they increase. We also pickup the appraisal fees and legal fees.*

Book Now. Call us and set up an appointment for a free personal consultation at your earliest convenience.

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