Many Canadians are educated on the regular prime interest rate increases from The Bank of Canada. However, very few are educated on how the new OSFI rules that came into effect January 1st,2018 will affect them. Before January 1st, uninsured borrowers can qualify for a 5-year fixed mortgage with rates as low as 2.94%. Since January 1st, 2018, they will need to qualify at 4.99%-leaving a 20% gap that many are unprepared for. The new rules will essentially be a two-point rate hike in qualifying for a mortgage. If unprepared, borrowers could face paying higher interest rates, using a co-signer, or may even have to delay purchasing altogether.
Some 10 percent of Canadians who got an uninsured mortgage between mid-2016 and mid-2017 would not have qualified under the new standards, a recent analysis by the Bank of Canada suggested.
If you are thinking that you’ll be unable to qualify for a mortgage at the stress test rate, you do have options. You can put more money towards your down payment, add a co-signer to the loan or buy a home of lesser value to ensure you meet the new stress test requirements.
Keep in mind this will not affect the Credit Unions or private borrowers, they are not affected by the OSFI rule changes and will be able to get you a mortgage on the posted rate, not the stress test rate. Brokers work will all banks, credit unions and trust companies so keep this in mind with the rule changes.
It’s also important to note that the stress test is not applied on mortgage renewals. The downside to this is that it will cause many borrowers to be forced into renewing their mortgage- negatively impacting their ability to shop around for the best rate. We can educate you on the best course of action for your current situation and let you know how the stress test will affect your renewal.
With all of the changes, it is a more important time than ever to sit down and discuss your numbers and get a pre-approval. Not only do we discuss what you qualify for, we ensure that we get a mortgage that fits within your payment plan. A pre-approval will also give you a clear idea of the purchase price you will be looking for and gives us the ability to place a rate hold for up to 120 days for you. With the tighter mortgage rules, it will give us time to discuss your credit score and give you tips to clean up your credit. There is a lot changing in the Mortgage Industry and a large number of consumers are unaware of how these rule changes will affect them. We will walk you through the changes and educate you so you feel confident in your mortgage decisions.