On October 17th, 2017, new rules regarding mortgages and how they can be lent out were introduced by the Office of the Superintendent of Financial Institutions (OSFI). These rules were to take effect starting from January 2018, and since 2018 has already started, it is very important for everyone who is concerned with mortgages to know these rules, how these rules are going to affect them, and what should and should not they do.
Office of the Superintendent of Financial Institutions (OSFI) has set up a qualifying rate that is supposed to function as a “stress test” for mortgages that are uninsured. Uninsured mortgages refer to those mortgages that have down payments that are 20% or greater than the price of the home.
The effect of this new change can be overwhelming or difficult for new homebuyers as they might have trouble affording that particular home. They will have to settle for less.
The requirements of these new rules include that the minimum qualifying rate that uninsured mortgages oftentimes have, needs to be greater than that of the five-year benchmark rate. This benchmark rate is actually published by the Bank of Canada. There is also another exception to this rule which basically means that the 200 basis points need to be above than the contractual rate of the mortgage holder.
The biggest impact, however, is the first time buyers. They will still have to pass the stress test. It doesn’t matter how much money they put down for their down payments, it is still a requirement for them to pass this stress test.
There are three options for a first-time homebuyer that is not able to pass this new stress test.
They have is that they can put down even more money than they already have on their down payment, this may or may not allow them to pass the stress test.
They can rethink if buying a home is the right option for them.
The third and final option is that they can find a person who can function as co-signer for the mortgage, the requirement, in this case, is that the person needs to have a stable form of income.
Another thing that should be noted is that if a person decides to stay with their existing lender, then they don’t have to pass this new stress test. But if they decide to suddenly go with another lender then they will have to pass the stress test all over again.
Now if you are looking to buy a new home for the very first time, then the smart move would be to try and wait a little longer so your income will be able to support the stress test. There is also an alternative to this, which is to look for a home that you can actually afford, it doesn’t have to be that particular home that you have always wanted. It can be something that you can compromise with.