The New Mortgage Rules Explained by My Mortgage Broker ~ Niki Cuthbert
UPDATED Dec 27, 2017
You’ve probably noticed that the media has been spending a lot of time covering the upcoming changes to mortgage lending rules that will take effect Jan. 1, 2018. However, there still seems to be a lot of uncertainty as to who these new rules will impact. It might be an oversimplification to say that these new rules impact everyone, but that is closer to the truth than saying they don’t impact anyone!
The biggest impact is going to be felt by those people looking to buy a property with a 20% or greater down payment. From my calculations, this group will see a reduction of about 20% in their buying power. As backwards as this seems, if you have a down payment of 20% or more, you will now qualify for 20% less of a mortgage amount on new years day than you did on new years eve.
If you have a mortgage pre-approval in place, and you’re looking to buy a property in the new year, and you’re expecting to qualify under the old rules, your best bet is to schedule a phone call to discuss. Some lenders have said they will honour their pre-approvals, some have said they will adopt the new rules Jan 1st 2018, and some lenders haven’t made their intentions clear.
Another group impacted by these rule changes is anyone looking to add money to their existing mortgage or have to re-qualify in any way. So if you find yourself in any of the following categories, you will have to qualify under the new rules:
– If you are looking to refinance your existing mortgage to access some home equity
– If you are looking to get a line of credit secured to your home as part of your mortgage
– If you are looking to port an existing mortgage
The only groups of people who aren’t impacted by these new mortgage rule changes are those who are looking to simply renew their existing mortgage for the exact same amount with the exact same lender or if you are purchasing a home with less than 20 percent down.
So if you have any questions about how these changes will impact you, please ask away.
Also, I should note that even if you don’t think you will qualify under these new rules, please don’t let that stop you from exploring all your options. Especially if you have an existing mortgage up for renewal. According to a Maritz survey, only 56% of borrowers negotiated their mortgage rate at renewal. 4 in 10 actually took the first rate their bank offered. That’s a very scary stat, considering banks rarely offer their lowest rate upfront. Don’t pay more than you should
UPDATED NOV 29, 2017
You’ve probably heard that there are new mortgage rules coming into effect onJanuary 1st. 2018.
Please note that even though you may have a preapproval, you will be subject to the new regulations if you have an accepted offer after January 1, 2018. If you have a pre-approval before January 1, 2018 you will fall under the old regulations. Over the next week you’ll most likely hear a lot of commentary on whether these rules are good, bad, necessary, or unnecessary. And no doubt someone somewhere will come to the conclusion that no one will ever get a mortgage again, and that the housing market in Canada is going to come crashing down around us. Please remember that it’s the media’s job to write headlines and attract eyes, so they tend to sensationalize everything. Take what you hear with a grain of salt. Mortgages will still be written, and houses will still be bought.
At the end of the day, these new rules (outlined below) will come into play, and there’s nothing we can do to change the government’s mind. So how do we respond? Well… as it becomes increasingly difficult to qualify for a mortgage, your goal should be to work with a mortgage professional that gives you more choices. Instead of working with a single institution; having access to a single line of mortgage products, when you work with a mortgage broker, you have access to many different lenders, with a wide variety of choices. It’s more important than ever to think critically about your mortgage financing.
As mortgage rules tighten, your goal should be to find as much flexibility as possible, you do this by working with a mortgage broker. So if you have any questions about your mortgage, please don’t hesitate to contact me anytime, I’d love to have a conversation with you.
Okay, so on to the changes… the biggest change to the rules surrounding mortgage qualification is that a requirement to stress test each mortgage will be now applied to all borrowers, instead of just borrowers who have less than a 20% down payment. Qualification for all mortgages will now be made at a minimum qualifying rate which is the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
OSFI (The Office of the Superintendent of Financial Institutions) released their final version of their new guidelines for the mortgage industry. Below is the news release from OSFI. called: OSFI is reinforcing a strong and prudent regulatory regime for residential mortgage underwriting
For Immediate Release
OTTAWA – October 17, 2017 – Office of the Superintendent of Financial Institutions Canada
Today the Office of the Superintendent of Financial Institutions Canada (OSFI) published the final version of Guideline B-20 −Residential Mortgage Underwriting Practices and Procedures. The revised Guideline, which comes into effect on January 1, 2018, applies to all federally regulated financial institutions.
The changes to Guideline B-20 reinforce OSFI’s expectation that federally regulated mortgage lenders remain vigilant in their mortgage underwriting practices. The final Guideline focuses on the minimum qualifying rate for uninsured mortgages, expectations around loan-to-value (LTV) frameworks and limits, and restrictions to transactions designed to circumvent those LTV limits.
OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages.
- Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
OSFI is requiring lenders to enhance their loan-to-value (LTV) measurement and limits so they will be dynamic and responsive to risk.
- Under the final Guideline, federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve
OSFI is placing restrictions on certain lending arrangements that are designed, or appear designed to circumvent LTV limits.
- A federally regulated financial institution is prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.
“These revisions to Guideline B-20 reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada,” said Superintendent Jeremy Rudin.
- On July 7, 2017, OSFI published draft revisions to Guideline B-20 – Residential Mortgage Underwriting Practices and Procedures. The consultation period ended on August 17, 2017.
- OSFI received more than 200 submissions from federally regulated financial institutions, financial industry associations, other organizations active in the mortgage market, as well as the general public.
- The cover letter includes an unattributed summary of the comments and an explanation of how these issues were dealt with in the final Guideline B-20.
- Following publication of Guideline B-20 OSFI plans to assess Guideline B-21 − Residential Mortgage Insurance Underwriting Practices and Procedures for consequential amendments.
- Cover letter (including a summary of industry comments and OSFI’s responses)
- Guideline B-20 – Residential Mortgage Underwriting Practices and Procedures
The Office of the Superintendent of Financial Institutions Canada (OSFI) is an independent agency of the Government of Canada, established in 1987 to protect depositors, policyholders, financial institution creditors and pension plan members, while allowing financial institutions to compete and take reasonable risks.
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