As was the speculation the last few months, today the Office of the Superintendent of Financial Institutions (OSFI for short) announced mortgage rule changes coming into effect on January 1st, 2018. HERE is a link to the press release from this morning.
Effective January 1st, 2018, all conventional mortgages (borrowers with 20% down or more) are now required to qualify based on a "stress test" similar to CMHC borrowers. Currently, CMHC/high ratio mortgages are required to qualify based on a posted rate. That means that all borrowers qualifying with bank/prime mortgage lenders (lenders that give best rates) are impacted by these changes. All conventional mortgages are required to qualify based on the face rate (the rate the client is paying) plus 2%. As of today that puts the qualifying rate at 5.19%+/- for a 5 yr fixed term. That is actually higher than the rates a borrower is required to qualify under the current CMHC guidelines. The qualifying rate for CMHC mortgages is at 4.89% as of today.
It's unsure why OSFI did not follow the same guidelines that CMHC borrowers are faced with. It's odd that a well-positioned borrower with 20% or more downpayment is now being penalized and forced to qualify at stricter guidelines than a borrower putting 5% downpayment.
The potential for this to have a severe impact on the market is high. An average household making $150,000, with minimal debt could see their approved mortgage limit drop from approx $850K as of today to $650K based on the new guidelines. We will likely see a run up as borrowers who are actively looking will speed up their home searches to get in under the old rules. This will also impact cash-strapped Canadians who want to refinance their homes in order to payout high-interest debt. It could leave borrowers to look at private or alternative lenders at higher rates and fees.
We've now had two changes to the mortgage rules and some significant increases to interest rates in the last 6 months. The impact and effects of this could take months to fully play out but one thing is for certain, it will impact the amount that borrowers qualify for. This will come into effect January 1st, 2018 so a client will just have to have their full mortgage approval submitted prior to that date. If a client is pre-approved under the old guidelines but has not bought before this date, they will be subject to the new rules when they do actually buy.
Jason Friesen PFP®
Verico Premiere Mortgage Centre Inc.