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New Mortgage Rules: How Will You Be Affected?

With less than a month until the new mortgage rules kick in.  Awareness is key to making good decisions regarding your real estate future.

If you haven’t already heard, the Office of the Superintendent of Financial Institutions (OFSI) has implemented new mortgage rules, which will be in effect as of January 1, 2018.  These new rules will definitely shift the current housing market.  The severity of the impact is yet to be determined, once the rules are implemented.  

So what are the new rules?  And why should you care?

 

Stress Test

While the stress test was implemented in 2016 for buyers with a down payment under 20%,  OSFI has decided to implement the rule for all new home buyers and it is important to be aware of how it could potentially affect you.  

As a way to ensure Canadians who are buying homes are able to withstand potential increases in interest rates, mortgages offered by major Canadian lenders (the big banks) will be subject to a stress test.  The new rule will now include the uninsured buyer, which were those with a down payment of over $20,000.

Prior to this new rule, only uninsured buyers (those with a down payment of less than 20%) were subject to a stress test. However, now, no matter how much you have for a down payment, you will not get a mortgage from the bank, unless you pass the new stress test.

Under the new rules, buyers will have to show they can afford their mortgage payments at either the five-year average rate posted by the Bank of Canada or two percentage points higher than whatever deal they negotiated with their lender — whichever measurement is higher.

The stress test is designed to simulate a borrower’s financial situation should an interest rate increase occur.  This is by assuming they would have to pay back the loan at the posted average — not whatever deal they were able to negotiate. So under OSFI’s new rules, borrowers would be stress tested at either the five-year average posted rate, or two percent higher than their actual mortgage rate — whichever one is higher.

Please note, the new stress test rules won’t apply to mortgage renewals as long as they are with the borrower’s existing lender.

 

Overall Effect

The implementation of stress tests and changes in the housing rules could mean that Canadians on a whole, could potentially afford about 20% less house.  Meaning, that whatever a buyer was approved for prior to 2018,  can now expect to purchase a home that is about 20% less.  So, you’re $500,000 approval, looks more like $400,000 in 2018.    

Industry experts share differing opinions on the new rules.  While some think it’s a good way to level out the market, others show concern about it concentrating the market and perhaps making certain homes overly competitive, while others run the risk of sitting on the market much longer.

At the end of the day, it’s very important to be aware of OFSI’s new rules and how they may affect you.  Making informed decisions are always the best decisions.  

At Team Burca Real Estate we are committed to providing clients with excellent service. This includes educating clients on their best options when it comes to Real Estate. For more information, contact us today!

 

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