Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), introduced new rules that extend the requirement for a mortgage stress test to all home buyers, including those with larger down payments. Currently, the stress test only applies to mortgages with lower down payments and those with a term of less than five years.
The guidelines will take effect Jan. 1, 2018 and apply to new mortgages as well as mortgage renewal applications if borrowers switch lenders. Financial institutions won’t be obligated to apply the test at mortgage renewal for existing borrowers, although they may choose to do so.
The rules effectively reduce the size of the mortgage Canadians will be able to obtain given a certain down payment and income. As a result, qualifying will become much harder and savvy buyers are taking note and looking to buy before the changes are put in place.
Let us consider a scenario where a family is offered a mortgage rate of 2.83 per cent, (more than two percentage points below the current Bank of Canada five-year benchmark of 4.89 per cent). If they were to apply for a mortgage today, with 20 per cent down payment, a five-year fixed mortgage, and a 25-year amortization period, they would be able to afford a home worth $726,939. If they were to apply for a mortgage with all the same variables on or after Jan. 1, they would only be able to afford a home worth $570,970.
We all know that interest rates are on the rise. Since last November, buyers were able to obtain discounted mortgage rates at 5 years fixed at 2.49%. These rates have steadily climbed to 3.49% at 5 years fixed rate. Rates are holding steady currently so it’s a good time for buyers. Canada mortgage news writes that the new mortgage rules could eliminate 15% of Canadian buyers from qualify for a home mortgage.
Calgary Real Estate Association (CREA) forecasts a 7.4% increase in the Calgary housing market due to a slowing down of booming housing markets in Toronto and Vancouver.
In my opinion, if you plan on buying a property of any kind in the coming year, the time to buy is now. Please note that the Mortgage qualifying will change but mortgage payments will remain the same so it’s wise to invest now.