New Mortgage Rules to be set in 2018
Canada's top banking regulator, The Office of The Superintendent of Financial Institutions (OSFI) have published the final version of its new mortgage rules which includes a requirement to "Stress Test" borrowers with uninsured loans to ensure they can withstand higher interest rates. The changes will be offiicial as of January 1st, 2018.
Borroweers with a down payment of under 20% for a home must purchase mortgage insurance. Even though borrowers pay an insurance premium, the beneficiary is actually the lender since the insurance protects the loan giver in the event the borrower defaults the loan. Anyone who puts down more than 20% of the value of a home doesn't have to pay such insurance, and is known as an "uninsured borrower"
The Stress test is designed to simulate borrowers financial situation by assuming they would have to pay back the loan at the posted average and not whatever deal they were able to negotiate. Borrowers would be stress tested at either the five year average posted rate, or 2% higher than their actual mortgage rate- whichever one is higher. Notably, the new stress test rule will not apply to mortgage renewals as long as they are with the borrowers existing lender.
It is believed that the housing markets reaction to the last stress test rules in 2016 are a good example of why the OSFI compelled to act again. As of August, insured mortgages were down 4.5% in 12 months since the subjecation of the last stress test. Uninsured mortgages grew 17.3%. This suggests that homeowners were doing anything to get their downpayments above 20% in order to avoid failing a stress test and getting locked out of an insured mortgage!
Have Questions regarding Real Estate? The Iris and Evelyn team are here to help! With their countless years of buying and selling Real Estate Properties, their experience and knowledge can help you make the right choice!
Visit us on Facebook: