Effective January 1, 2018, your home buying power could be reduced up to 20% with the implementation of the latest mortgage rule for uninsured mortgages. Uninsured mortgages are for consumers with down payment of 20% or greater than their home price.
The Office of the Superintendent of Financial Institutions (OSFI) is setting a new minimum qualifying rate, or “stress test” for uninsured mortgages. This significant change will affect Canadians who are not only looking to purchase but to refinance as well.
The new rule now require the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or 2% above the mortgage holder’s contractual mortgage rate.
Your buying power before and after January 1, 2018. Two scenarios for an annual household income of $100,000 and a down payment of $160,000 (at least 20% down).
Scenario 1: Today
5 year fixed rate
Qualify on contracted mortgage rate of 3.09% (rate subject to change)
A 30 year amortization
Maximum Purchase Price = $787,000
Down Payment = $160,000
Mortgage Principal = $627,000
Scenario 2: After Jan. 1, 2018
5 year fixed rate,
Qualify on contracted mortgage rate + 2% = 3.09% + 2% = 5.09% since this rate is greater than the posted benchmark rate 4.99%
A 30 year amortization
Maximum Purchase Price = $655,000 (17% less than $787,000)
Down Payment= $160,000
Mortgage Principal = $495,000
Is there a stress test for down payment of 5% but less than 20%? In the Fall of 2016, the Canadian Government implemented a “mortgage rate stress test” that required home buyers with less than 20% down-payment to qualify at the posted benchmark rate.
No matter how much a buyer puts down as a down payment, s/he will have to pass the stress test. The effect of the changes results in a 20% decrease in affordability, meaning a first-time buyer will be able to buy 20% less house.
What’s the best strategy to manage your mortgage? These tightened lending rules make it more important now than ever to work with a mortgage broker to ensure you have secured the best mortgage product for your personal situation. I will actively manage your mortgage for you, this takes away your need to dedicate time and energy to conducting the research noted above on your own.
***IMPORTANT – If you act quickly and obtain a signed purchase agreement before January 1, 2018 and a mortgage approval from a lender, you will be exempt from the new mortgage guidelines.***
For clarification about how much you can afford to borrow, please call me at 778-300-6400, or apply here to start your approval in just 30 seconds. (For the first question, select my name in the drop-down menu).