Our friends at Hanley Mortgage Group have provided us with a handy breakdown of the changes. Darlene Hanley has noted the following detailed, yet simple explanations of the implications of the new mortgage rules.
Client Cheat Sheet: Mortgage Need to Knows
News and Information You Can Use
New Rule Changes – January 1st, 2018
- On January 1st, 2018, OSFI implemented new conventional (uninsured) mortgage rules, attempting to protect homebuyers from mortgage default in a rising interest rate environment.
- The government introduced a rate cushion which will affect all uninsured mortgages (those with a down payment of 20% and all refinances). They must now qualify at the greater of:
–The Bank of Canada posted rate (5.14%)
OR
–Their contract rate + 2% (This means, if your rate is 3.39%, you would be qualifying at 5.39%)
- This results in approximately a 20% decrease in purchasing power
Example: *A couple (or an individual) who has a combined income of $150,000*
Maximum Purchase Price:
-
–Before the Stress Test: $1,050,000
-
–After the Stress Test: $840,000
–Difference of: $210,000
Bank of Canada Rate Increase
- On January 17th, 2018, the Bank of Canada increased its overnight lending rate to 1.25% from 1%.
- The major 6 banks have followed their lead and increased their prime rate. Each lender decides what their prime rate will be. (For example, Scotiabank’s is 3.45% but TD Bank is 3.60%)
- Changes in Prime influence variable interest rates and lines of credit.
-
Insured Mortgages
- Properties under 1 Million, with less than 20% down payment
- Insured by one of three insurers in Canada
- Minimum down payment is 5% on the first $500,000 and 10% on the difference up to $999,999
- Borrower has to be qualified at the Bank of Canada posted rate (5.14%) even if their contract rate is lower
This entry was posted on February 15, 2018 by Jim and Iris
Lesley-Anne Goodfellow