New Mortgage Qualification Rules
Posted 13 Mar 2018 by Melissa Allan
For years, we’ve heard about the Canadian housing bubble and the threat of a potential burst, particularly in the Greater Toronto Area and parts of British Columbia. The surging house prices have been jaw dropping to say the least.
The Office of the Superintendent of Financial Institutions (OSFI) has implemented three new rules effective Jan. 1, 2018 to try and lower the risk of a burst.
Now, you’ll have to follow these guidelines when applying for a mortgage or remortgaging:
1.) Qualifying rate stress test: If you have an uninsured mortgage, you must be eligible for a minimum qualifying rate. The rate will be the greater of the five-year benchmark rate published by the Bank of Canada or the lender contractual mortgage rate +2.0%. The Bank of Canada five-year mortgage rate is 5.14%.
2.) Enhanced loan-to-value (LTV) measurement by lenders and limits to ensure risk responsiveness: This means mortgage lenders must continue to follow appropriate LTV ratios that are reflective of risk within the market. These policies are already in place and many lenders followed these principles already, but OFSI will continue to ensure that lenders establish and adhere to these risks as the economic environment evolves.
3.) Restrictions placed on lending arrangements that avoid the LTV measurement: A lender who has a consumer who only qualifies for 60% of the LTV cannot partner with a second lender to come up with the other required amount to `blend the mortgages`.
If you’re renewing your mortgage and you don’t qualify under the new rules, the lender can renew but this means you cannot shop around for better rates and you may be forced to accept uncompetitive rates from your existing lender.
To get an idea of what you will qualify under the new rules, here’s a link to a good calculator: https://www.ratehub.ca/mortgage-payment-calculator
Nova Scotia has introduced a new Down Payment Assistance Program that may help those adversely affected by the changes to qualification requirements.