New Morgage Rules

New Morgage Rules

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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:

      1. –Before the Stress Test: $1,050,000
      1. –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

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