A few months ago, the OSFI (Office of the Superintendent of Financial Institutions) introduced some new strict mortgage rules. In less than a month, they’ll be coming into effect. So, if you are a home buyer applying for a new mortgage, with a down payment of 20 percent or more, than it’s not mandatory for you to insure your mortgage. However, what will be mandatory is the requirement to undergo and pass the same stress test that insured mortgage holders must also complete.
To put it simply, what this means, is that even though you may be in a better financial position that insured borrowers, you still have to still have to get qualified for a mortgage loan at the BoC (Bank of Canada) current 4.89% higher rate, or 2 percent points higher than what your mortgage lender is offering you. Are you prepared?
The Canadian Real Estate Market & Other New Rule Changes
Here are a few of the other changes that have already happened in the last year:
- The stress test for insured borrowers with a down payment of less than 20 percent
- Mortgage insurance restrictions for dwellings that are owner-occupied, mortgages with shorter terms, mortgages under 1 million dollars and individuals with a credit score minimum of 600
- Gross Debt Service ratio maximum of 39 percent, and a Total Debt Service ratio maximum of 44%
- Increase mortgage default insurance premiums for insured mortgage (up to 4 percent and control measures)
- Stress tests for mortgage refinancing and those switching lenders
- For BC residents, they must now also disclose their Canadian residency status to ensure they pay taxes on any capital gains, as a result of property sales for a principal residence
All of these changes were brought on because of the growing amount of Canadian household debt, raising in housing sale prices, and the level of risk all of these issues pose to the economy in general.
With the stress test, this will ensure that all borrowers, insured and uninsured would still be able to afford their mortgages, even if rates rise. This has already happened twice this year, and is bound to happen again with economy improvements.
Possible Impacts
In the short term, these new rules will yield a predictable outcome, resulting in:
- Increased demand and more home sales in December, as those with pre-approved uninsured mortgages will be hoping to close before the new rules come into effect
- More home buyers looking to buy cheaper homes as opposed to pricier ones, since there will be less first-time buyers qualifying for higher mortgage loans when these changes take effect
- House price growth rates will slow down in Toronto, and the surrounding area
- Increased support of non-regulated lenders (i.e. credit unions)
If you are a home buyer, a seller or a realtor, then it’s likely you won’t be a big fan of these soon-to-come changes. Although it will create a healthier, more stable economy, first-time buyers and new immigrants will face an increased challenge when buying their first home. However, as the housing market and growth rates slow down, new buyers and immigrants that do qualify will definitely benefit.