What you need to know about applying for a mortgage or re-mortgaging in 2018
New Mortgage Qualifying Stress Test Rules
You may have heard of recent changes in the mortgage lending market. The Office of the Superintendent of Financial Institutions or OSFI has set a new minimum qualifying rate, or “stress test,” for new mortgage applications. Previously these rules applied only to high ratio mortgages (less than 20% down) which required mortgage insurance through CMHC or another private insurance provider. These new rules now require all mortgages, regardless of the down payment amount to qualify not only for the applied rate, but also to qualify at the greater of the five-year published rate by the Bank of Canada (BOC) which is currently 5.14% or a full 2% above the borrower’s applied for mortgage rate, whichever is higher. These rules will apply to any new mortgage application, or a renewal application through a different federally regulated financial institution (Provincially regulated financial institutions are OFSI exempt; however in B.C. our regulators are the Financial Institutions Commission, known as FICOM) and does not apply to those that stay with their current provider.
Credit Unions Are Exempt From The New Rules
Unlike traditional financial institutions, Credit Unions are not regulated by OSFI as they are provincially legislated. Therefore credit unions are not subject to the new stress test rules. While some Credit Unions may voluntarily apply these rules many do not, some may choose to apply their own set of qualifying requirements therefore it’s best to check with your Account Manager or Mortgage Specialist. This can be a great option for those looking to switch from their current provider as they will not have to re-qualify under the new rules, although they will need to qualify under the new lenders current rules.
What does this mean for me?
To give you an example of the maximum amount that you may potentially qualify for, please see the illustrated example below:
Scenario 1
What a home buyer could qualify for under the new rules:
With a household income of $90,000, applying for a new mortgage under the new rules with a 20% down payment, 25 year amortization period and a contractual mortgage rate at or under 3.14%, a borrower with no other debt could qualify to purchase as high as $477,542 as they are forced to qualify not at 3.14%, but at the Bank of Canada 5 year rate of 5.14%.
Scenario 2
What a homebuyer could qualify for at a credit union that doesn’t voluntarily employ the OFSI stress test rules:
Again with a household income of $90,000, applying for a mortgage at your local credit union, with the same rate of 3.14%, 20% down payment, and 25 year amortization, a potential borrower with no other debt could qualify to purchase as high as $586,022. This means a potential increase of $108,480 or an increase of 22%.
Disclaimer: The above scenarios are simply an example of how the new OFSI rules affect qualifying ability and in no way reflect a guarantee of qualification or rate. Each borrower’s application is unique and must be administered through a company Account Manager or Mortgage Specialist. For more information or to book an appointment with a member of our lending team to see how much you could qualify for, please click here.
