The chances are fairly high that you’ve heard a lot in the news surrounding new mortgage rules that came into play on January 1st, 2018.
If so, you’re probably wondering how these new rules will affect you when it’s time to make a purchase or renew/refinance your current mortgage.
Lenders don’t have to apply the ‘stress test’ to borrowers who are renewing an existing mortgage. Still, that doesn’t mean remaining with the same lender is the right move.
It has never been more important to talk to your mortgage professional and find out how these rules may personally impact you. And if they do apply to you, how can we best manage your needs moving forward?
Focus on uninsured mortgage borrowers
The Office of the Superintendent of Financial Institutions (OSFI) announced three new changes to the mortgage rules that govern all federally regulated lenders, including:
1. Minimum qualifying rate for uninsured mortgages
2. Expectations around loan to value (LTV) frameworks and limits
3. Restrictions on transactions designed to work around these LTV limits
The change with the greatest impact will be in the uninsured mortgage realm. This affects homebuyers who’ve saved more than a 20% down payment – or are looking to refinance their current mortgage.
Applications for uninsured mortgages are now subject to a new stress test using the higher qualifying rate between the Bank of Canada’s five-year benchmark rate (currently 5.14%) or the contractual mortgage rate +2% (eg, 5-year fixed rate at 3.19% +2% = 5.19%).
In other words, if you fall into the uninsured mortgage category, you now qualify for less money to put towards your home purchase or the amount of equity you can access through a refinance.
Previously, only borrowers who had less than a 20% down payment (high-ratio mortgage borrowers) were subject to a stress test.
What role will rate increases play?
The government’s reasoning behind the new stress test rule for uninsured mortgages is to help prepare borrowers for interest rate increases.
The Bank of Canada has increased the prime rate twice in the past few months – most recently last week. Rates do still, however, remain low, and are predicted to rise slowly, yet steadily.
The new rules coupled with higher interest rates will see many borrowers – particularly first-time buyers – home shopping outside of Vancouver, in the hopes of finding property within their means.
Have questions about your purchasing or refinancing power? Answers are just a call or email away.