With all of the talk in the news about the new mortgage rules its easy to get confused. Kerri Becker with The Royal Bank of Canada has provided us with the information below to help simplify and make sense of the new rules.
The Office of the Superintendent of Financial Institutions (OSFI) announced the following new regulations effective January 1, 2018.
- When qualifying clients, federally-regulated financial institutions (FRFIs) will be required to approve conventional or uninsured residential mortgages at the greater of the contract rate plus 2% or the 5-year benchmark rate published by the Bank of Canada. This change applies to conventional / uninsured mortgages only, as the buyers with less than 5% down have been having to qualify at a higher rate 4.99% as of today already.
All potential home buyers will need to prove they could still afford their mortgage payments if interest rates were increased.
- Regardless of down payment, all purchasers will need to qualify at the benchmark rate or their contract rate + 2.00%, whichever is greater, when applying for a mortgage
- The majority of buyers are currently stress-tested at the posted rate (e.g. anyone putting down less than 20% or anyone choosing to go with a mortgage that is less than a 5yr fixed term) so the change only applies to a relatively small subset of the market
- The reason for the change is to further ensure all borrowers would be able to pay their mortgages if interest rates become higher than they are today
Questions? Contact us and we can help!