Important changes to Mortgage financing standards. Effective January 1st, 2018

Wednesday October 18th, 2017

Important changes to Mortgage financing standards. Effective January 1st, 2018

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:

http://www.osfi-bsif.gc.ca/eng/osfi-bsif/med/Pages/B20_dft_nr.aspx

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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