December 26th, 2017

According to the Office of the Superintendent of Financial Institutions (OSFI), tougher mortgage qualifying rules will take effect as soon as January 2018.
Why is this so important?
If you barely qualify for a mortgage now, you won’t in 2 months.
The new OSFI minimum qualifying rate, also known as the “stress test”, will be a requirement for all home buyers, including pre-construction condos, resale, freehold, and others requiring a mortgage. Presently, prospective home buyers with down payments of 20% or greater are not required to purchase mortgage insurance, and therefore forgo any preliminary testing.
Come January, new home buyers who fall under the uninsured borrower umbrella will submit to the same assessment as insured borrowers, with the qualifying rate ensuring that new mortgages, regardless of the down payment size, will be able to pay the loan if interest rates become higher than they are today. Meaning that, borrowers will be tested at either greater than the five-year benchmark rate, or two percent higher than their actual mortgage rate- whichever one is higher.

This equivalent of a 2% rate hike will equate to a drop of approximately 15-20% in purchasing power.
By the new year, some potential mortgagees may no longer be able to afford buying real estate.
With the help of Ratehub.ca’s Mortgage Affordability Calculator, here is an example of how the numbers tally up now, versus just about two months from now.

OCTOBER 2017 Vs. JANUARY 2018

Example:

Buyer’s mortgage rate is lower than the bank of Canada’s five-year benchmark rate

Current Bank of Canada Benchmark: 4.89%

Annual Income: $100,000

Down Payment: 20%

5 Year Fixed Mortgage Rate of 3.09%

Amortized over 25 Years

Results:

October 2017 maximum affordability: $706,692

January 2017 maximum affordability: $559,896


*Noteworthy:  The new stress test rules will not apply to mortgage renewals as long as you remain a client of your existing lender.