The Office of the Superintendent of Financial Institutions (OSFI) published on Tuesday, October 17, 2017 the final version of its B-20 Guideline, Residential Mortgage Underwriting Practices and Procedures, that all federally-regulated financial institutions must adhere by January 1st, 2018.
The key change applied will affect anyone wishing to purchase or refinance a property (1 to 4 units) and having at least 20% in down payment and/or equity for mortgage refinancing:
- Primary residence
- Secondary residence
- Income property (1 to 4 units)
Here is an excerpt of the OSFI's expectations:
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%.
See the full article by clicking on the attached link:
Here is an example of what a 2% increase could represent on your future purchase's mortgage qualification:
Purchasing price of a new $300,000 home
20% down payment = ($60,000)
Financing amount = $240,000
Qualification with the negotiated rate: 3.09% on a 5-year term = $1,146.90
Qualification with negotiated rate + 2% = 5.09% = 1,408.17 $
A difference of + $261.27 / month.
In the above example, if you are pre-approved for a maximum of $1,128.41 / month (principal and interest), you will unfortunately need to scale down the purchase price of your new home to $255,000 instead of $300,000, which is $45,000 less, to respect the maximum payment under these new qualification standards.
Example: Purchase price: $255,000 - $60,000 (down payment = $195,000 (maximum financing amount possible), which translates to a down payment of 23.53% instead of 20%.)
If you only wish to put a 20 % down payment, the maximum purchase price would be $244,000 instead of $300,000 (-$56,000) in order to respect the maximum financing amount of $195,000 as per the new qualification standards.
What to do?
As you know, the first step before buying a house, a condo, a cottage, an income property, etc., is relatively simple: you must first obtain a mortgage pre-approval.
As an OACIQ-certified mortgage broker, I am your partner of choice to guide you through this important purchase. With that said, I would advise you on the following points:
- Determine the maximum price according to your payment capacity;
- Determine the down payment required depending on the type of property;
- Establish a project budget and analyze your credit report;
- Inform you of available programs (Home Buyers' Plan, purchase plus improvement plan, etc.);
- Get you the best advice and the best tax strategies;
- Explain all costs to be expected at the time of purchase, e.g., property inspection, notary costs, property transfer tax, insurance, etc.;
- Offer you the best financing solutions at the best rates and most importantly, listen to your short, medium and long term needs;
- As a mortgage broker, I can even guarantee a rate for your future loan mortgage with a pre-approval certificate for the banking institution of your choice, free of charge!
If you wish to purchase a property, please don't hesitate to contact me; by doing so, you'll be better prepared for your project!
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