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Mortgage Rules Tighten Again...Effective January 1st 2018

As you have most likely heard, the mortgage rules are getting tighter once again.
The Office of the Superintendent of Financial Institutions (OFSI) has finalized new guidelines & rules which will take effect January 1st 2018.

OFSI is setting a new minimum qualifying rate, or STESS TEST, for all uninsured mortgages. Those with 20% down payment or more.
Currently anyone with less than 20% down, High Ratio, must qualify at the benchmark rate. This was introduced in October 2016.

The new rules require the consumer to qualify at the greater of the benchmark rate, which is published by the Bank of Canada (BoC) currently at 4.89% OR 2.00% above the contractual rate on the mortgage. The results of this change show a 20% decrease in affordability for the consumer.

The example below shows a before & after the rules come into effect, using the higher of the 2 rates.

QUALIFICATION TODAY…
$100,000 – average family income

Qualifying @ 5 yr fixed 3.09% - conventional rate

$706,000 – Home Purchase
20% down payment

QUALIFICATION WITH NEW RULES – Jan 1st 2018…
$100,000 – average family income

Qualifying @ 5 yr fixed rate 3.09% PLUS 2.00%

$559,000 – Home Purchase
20% down payment

This is a reduction in purchase price of $147,000

Any current mortgage that comes up for renewal does not have to meet the new guideline. However if you are wanting to refinance, then you will be subject to the current rules/guidelines.

There are also a few other changes, mostly for internal approval process at lenders….

- Federally regulated financial institutions must establish and adhere to appropriate loan-to-value (LTV) ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve.
This means that lenders can set maximum LTV’s based on housing markets in certain areas. Areas that may show slower movement or a downward trend in house prices.

- A federally regulated financial institution is prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institutions maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.
This mainly effects bundled mortgage products. Lenders who offer 80% 1st mortgages with a 2nd mortgage to 90% at the same rate, making it a bundle, and a loophole to get around making the mortgage insured. Therefore not having to qualify as if its insured.

With all past rule changes, the lenders have grandfathered anyone who enters into an Agreement to Purchase prior to the January 1st 2018.

If you or your clients have any concerns about how this will affect them come the new year, please reach out to us.

Thank you – Lyle & Reegan Somers

Bank Prime 3.70
1 yr fixed 4.09
2 yr fixed 3.69
3 yr fixed 3.69
4 yr fixed 3.69
5 yr fixed** 3.49
7yr fixed 4.04
10yr Fixed 4.19
Variable Prime*** Conditions Apply 2.7
**Special - conditions apply
Effective October 10th 2018
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