The new mortgage rules become effective
Jan 1, 2018.
The official info – Official release from Office of the Superintendent of Financial Institutions (OSFI) – Government of Canada
As I’m not a mortgage broker nor do I pretend to crunch numbers like one, I asked my trusted mortgage broker, Jason Dodd from First Foundation to give me a hand.
How will the new mortgage rules impact buyers?
1.) What this means across the board is that your purchasing power is decreasing by about 20%. ( Previously this only applied to insured mortgages. Now it applies to everyone as of Jan 1, 2018.)
Your qualification is no longer based on the lending rate provided to you. It is now based on a government prescribed rate. If you want a 3% mortgage, for example, you’ll need to qualify at the Bank of Canada benchmark rate, currently 4.89%, or contract rate + 2%, whichever is HIGHER. Right now some of those 2% rates on 5 year are higher than the National Qualifying Rate.
2) Your qualifications may fluctuate across areas of the country and be adjusted in ‘soft or softening markets.
OSFI (Office of the Superintendent of Financial Institutions – Government of Canada) is going to “require” lenders to have more “dynamic” Loan-to-Value (LTV) ratios. Presumably this means that lenders will have to require more money down from buyers in markets that are soft or softening. This could dramatically impact first time buyers who usually can qualify with 5% down. Now the government may determine what’s “reasonable” for any given market. In the past lenders were able to make these decisions for themselves.
3) Having multiple mortgages will be calculated differently. This will impact those purchasing a home or refinancing a home with more than one mortgage.
OSFI will ban the practice of combining a first mortgage and second mortgage to a LTV above 80% and marketing the effective blended rate (which is true and accurate as a weighted average, BTW) because they feel that it circumvents the 80% LTV limit. What OSFI doesn’t explain here is that nothing will change except the consumer will be more confused than ever. Instead of presenting one rate, the lender(s) will have to present two rates, two payments, and two loan-to-values. This increases complexity and confusion.
These changes are important to both buyers and sellers.
For buyers, these changes will significantly impact your purchasing power as of Jan 1, 2018. I have heard that any purchase contracts FIRM prior to this date will follow current rules, but that isn’t in stone and can change. You are best to double check with your mortgage broker. Anything after this date is bound by the new rules. If you are purchasing pre-construction check with your lender.
For sellers, the pool of buyers for your home will be changing and it is important to review the details as you plan your sale.
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