New Mortgage Rules Come Into Effect January 1, 2018

If you’re looking to buy and will have more than 20% down, or if you are considering refinancing, then you might want to do so before January 1, 2018. Why? On October 17, 2017 the Office of the Superintendent of Financial Institutions (OSFI) released new guidelines for residential mortgage underwriting at all federally regulated financial institutions.  Beginning January 1, 2018, a new “stress test” will be applied to all new conventional mortgages – and not just those mortgages that require mortgage insurance (downpayment or equity of less than 20%).

The stress test is designed to protect homeowners should interest rates rise. Lenders will be obligated to quality all new conventional mortgages at the greater of the Bank of Canada’s five-year benchmark rate (currently 4.89%) or the contract rate plus 2%. For example, if your mortgage rate is 3.29%, you will have to qualify as if the rate were 5.29%.

What the new rule might mean for you:

You’re buying a home with more than 20% down. Your payments will always be based on your contract rate so the new rule isn’t costing you more. However, the new rule might change how much mortgage you qualify for. If that’s the case, you may need to look at a less expensive home, save up for a larger nonpayment, or reduce your overall debt.

You want to refinance to pay off debt or buy an investment property. Your actual mortgage payment will not be affected. The new rule could make it more difficult to qualify for your refinance. You may need to accumulate more equity, or look at a lower-rate variable rate mortgage.

Your mortgage comes up for renewal in 2018. This more stringent qualifying requirement will not apply to mortgage renews. BUT if you want to switch to a new lender to get a better rate, the new rule kicks in and you’ll have to qualify under the new guidelines.

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