Important changes coming to mortgage financing standards

Monday September 18th, 2017

Important changes coming to mortgage financing standards

The Office of the Superintendent of Financial Institutions (OSFI) is currently studying the possibility of applying another major change that will affect anyone looking 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)

* These changes are expected to come in effect by the end of 2017 (date to be confirmed).

Here is an excerpt of the OSFI's expectations:

Requiring a qualifying stress test for all uninsured mortgages (at least 20% in down payment and/or equity for mortgage refinancing);

See the full article by clicking on the following link:

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

The key element that will most likely have an impact on you this fall is already in effect in some financial institutions:

 

The qualification rate of all uninsured mortgages must at least equal the amount of the mortgage's contractual interest rate, plus 2%.

Here is an example of what a 2% increase could represent on your future purchase's mortgage qualification:

Price of new house = $300,000
20% down payment = $60,000

Funding amount = $240,000

Qualification with the negotiated rate: 2.94% on a 5-year term = $1,128.41

Qualification with the negotiated rate +2% = 4.94% = $1,387.67, a difference of $259.26 / 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 $243,000 instead of $300,000 (- $57,000) to respect the maximum payment under these new qualification standards.

*** NOTE: The date of entry into force of these new rules has not been announced yet. However, the OSFI only gave a few days notice before applying their new conditions last fall.

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. I will 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.);
  • Provide you with the best tax advice and 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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