The Learning Centre:
Two important mortgage rule changes from OSFI.
These rules come into effect January 1, 2018.
Looking to buy a home, or renegotiate your mortgage, in the new year? Here’s what Educators Financial Group clients should know about the changes from the Office of the Superintendent of Financial Institutions (OSFI) Canada that are coming in the new year:
1. There are changes to the mortgage stress test.
Non-insured mortgage consumers – those with a 20% or greater down payment – will have to qualify using a new minimum qualifying rate. Whereas before, non-insured mortgage consumers qualified at the rate offered by the lender, now they will have to qualify at the greater of the five-year benchmark rate published by the Bank of Canada (currently 4.89%) OR the lender contractual mortgage rate plus two percent.
Insured mortgage consumers – those with a down payment of less than 20% must now qualify for a mortgage at the Bank of Canada rate.
Here’s an example:
|Mortgage Amount $400,000||If Your Contract Rate is 3.44%||Benchmark Rate 4.99%|
*The chart above is based on 35% GDS RATIO (Gross Debt Service Ratio) and a 25 year amortization.
You can still refinance your home.
Homebuyers will still be able to refinance up to 80% of the value of their home. They will have to pass the same stress test as above.
2. Lenders must enhance their “loan to value” (LTV) measurement and limits, to ensure risk responsiveness.
All mortgage lenders, with the exception of credit unions, will be required to establish and keep to appropriate LTV ratio limits. These must reflect risk, and be updated as housing markets and the economic environment change.
Note: Many lenders have been following this policy for several months already, as it is a continuation of an existing policy requiring them to have risk management protocols in higher priced markets such as Vancouver or Toronto.
How can Educators Financial Group help?
To understand these changes, it’s important for anyone getting a mortgage – new homebuyers or existing homeowners – to work with a mortgage expert. There are differences amongst the many lenders that Educators Financial Group has access to. Our Accredited Mortgage Professionals have knowledge of the lending environment that will help you choose which lender best suits your needs.
Terms you should know:
Insured Mortgage/High Ratio Mortgage: less than 20% down payment
Non-Insured Mortgage/Conventional Mortgage: 20% or greater down payment/equity
Bank of Canada Rate: the 5-year fixed posted rate (currently 4.89%)
Contract Rate: the actual rate offered by the lender to the consumer
Benchmark Rate/Qualifying Rate: Stress Test: Bank of Canada Rate OR Contract Rate +2%, whichever is greater
LTV (Loan To Value): the size of a mortgage compared to the value of the property securing the loan
For additional mortgage terms, please visit The Learning Centre.
The information on this page was current at time of printing. Educators Financial Group will continue to educate our mortgage advisors as new information arises, so you can be kept up to date.