QA SERIES: New Mortgage Stress Test

27 October 2017
Life and the City

This post is a part of our ongoing Q&A Series in which we address various hot topics relating to the GTA real estate market, about real estate in general, or about our Team.   

Have a burning question about any of these topics? Fill out the form below and we'll get back to you!

By now, you've undoubtedly heard about thelatest mortgage lending restrictions that were recently announced by the Office of the Superintendent of Financial Institutions (OSFI). Here is an overview of what these changes mean, and how they will impact buyers in 2018.

Effective as of January 1st, 2018, the new rules on mortgage lending will apply a minimum qualifying rate, or "stress test" to ALL new uninsured mortgages, regardless of down payment size. Under the new rules, even home buyers who don’t require mortgage insurance because they have a 20% down payment, will have to prove they can make meet their commitment if interest rates rise above the five-year benchmark rate published by the Bank of Canada or 2% higher than their contracted mortgage rate, whichever is higher.
 
This means that a borrower being offered 2.99% for a 5 year fixed rate will need to qualify at 4.99%, because that's higher than the current posted rate of 4.89%.
 
How will the new rules affect buyers in 2018?

The main effect will be felt by first-time buyers. It appears that most approvals will be reduced by nearly 20% as a result of this higher qualifying rate - meaning that a first-time home buyer will essentially be able to buy 20% less house.

We are still waiting to hear updates from lenders, but if there is any possibility that you are considering a move next year, we would strongly recommend getting a pre-approval NOW, as they will likely be honoured past January 1st.  This way, you will know what you can afford,  be well prepared to weigh your options, and beat the flurry of activity before the new rules take effect in the new year.
 

Click here to review the official announcement in full
 
Any questions, just let us know by filling out the form below.