The Wright Sisters Group | Union Realty Brokerage Inc. - The Beaches, Leslieville, Riverdale and East York Real Estate Specialists – Your East End Toronto Real Estate Team

Major Mortgage Policy Change

03 November 2017
LINDSAY WRIGHT

We are happy to share with you the most recent mortgage news via one of our preferred mortgage brokers, Joanna Lang of the Lang Group. Fresh off the presses from Joanna: “While the details are still trickling in, the Office of the Superintendent of Financial Institutions (OSFI – the bank regulator) has once again used its powers to tighten mortgage qualification rules. These changes are effective as early as today for some lenders, but no later than January 1, 2018 and will impact anyone looking to purchase a home with a 20% + down payment (or looking to refinance).

As this is a federally initiated change, our credit union lenders, which are provincially regulated, may not be impacted initially which could provide potential solutions on a case by case basis.

We will continue to monitor this closely as the various banks and lenders issue their responses/implementation dates and guidelines.  We hope you find the information below helpful, and we are available at any time to discuss specific client questions or scenarios you may have ,or the changes in general.

What’s Changing? 

While a number of changes were announced today, the most significant is with respect to setting a new minimum qualifying rate, or “stress test” for uninsured mortgages (i.e., mortgages with 20% or more down payment).

As a recap, currently, if you have 20% or more for a down payment and you select a 5 yr fixed mortgage term, you can qualify for a maximum mortgage using your actual monthly payment in the calculations.  A typical 5 yr fixed bank rate is around 3.24% right now, which is called the “contract rate” or “actual rate”.  Going forward, while your actual mortgage payment would still be based on your contract rate, you would need to qualify using a much higher monthly mortgage payment based on the new “stress test” rate requirement which is the HIGHER of:

  • The 5 yr benchmark rate published by the Bank of Canada (currently 4.89%), or
  • The contract rate plus 2.0% (i.e., if the contract rate is 3.24% the qualifying rate would be 5.24%)

In the above example, this change would significantly reduce the maximum purchase price or refinance amount that a person could qualify for as it would require them to qualify based on a stress test rate of 5.24% vs. the contract/actual rate of 3.24%  – please refer to the impact section below for examples.

When is This Changing?

The banks/lenders have yet to comment, but it is anticipated some may start implementing the new rules as early as today, but no later than January 1, 2018.  As noted, this is a federally regulated change which will impact the banks, but it is expected most mono-line lenders will follow suit.  Credit unions are provincially regulated, so there may be gaps of opportunity that become available over the coming months and into the new year.

What is the Potential Impact?

While every case is different, we have included a sample max purchase price impact calculation for a 20% down buyer:

Impact Example #1 (Max Affordability):


Total household salaried income = $200,000
Down payment available = 20%*
Mortgage Product Chosen = 5 yr Fixed
Purchase Style / Location = Freehold / Toronto
Debts = limited debts (i.e., credit card, car, etc.)

Current Max Purchase Price = Approx. $1,550,000*
Max Purchase Price After New Stress Test Rules = Approx. $1,320,000*

(Note: the above is for illustration only.)

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Impact Example #2 (Max Affordability):


Total household salaried income = $100,000
Down payment available = 20%*
Mortgage Product Chosen = 5-year Fixed
Purchase Style / Location = Condo / Toronto
Debts = limited debts (i.e., credit card, car, etc.)

Current Max Purchase Price = Approx. $720,000*
Max Purchase Price After New Stress Test Rules = Approx. $620,000*

(Note: the above is for illustration only.

*For the above examples we convert the 20% down payment to a $ amount that is the same in both the contract rate and new stress test rate qualifying scenarios.  Many media reports on the subject appear to be using a straight 20% down payment for both scenarios which would make the decrease in affordability appear larger.

What to do next?

Have you been on the fence about buying a new home? Now is the time. If you have any questions about the changes or what the market has to offer to you, feel free to contact us today.

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What is the Media Saying?

While additional details are expected to be published throughout the week, we have included a link to the OSFI announcement as well as a few relevant articles that have been recently released:

OSFI Announcement Posted on Government of Canada Website – Oct 17, 2017 

The Globe and Mail Article – Canada’s banking regulator raises bar for uninsured mortgages

CBC.ca Article – OSFI finalizes new mortgage rules, including stress test for even uninsured borrowers

Financial Post Article – Canada’s banking watchdog sets tougher rules for mortgage lending

BNN Article – OSFI sets new rules for mortgage lending

Mortgage Contact 

Joanna Lang
The Lang Team
416.834.1590
info@thelangteam.ca