OSFI Mortgage Changes Explained

OSFI Superintendent Jeremy Rudin is likely the only person happy about the new stress test announcement that literally kicked First Time Buyers and savers in the teeth.

As of January 1st 2018 ALL Borrowers will have to qualify at 2% over the rate they’ve been offered OR the banks posted rate. Whichever is higher.

For example: If your Lender has agreed to fund a mortgage for you at a rate of 3.39% for a 5yr fixed you would apply the 2% stress test making them qualify you at a rate of 5.39%. Now the Banks posted rate as of today is 4.89%. Your mortgage qualification would have to be based on a rate of 5.39% (always the higher) regardless of which rate you’ll end up actually getting. If your offered rate (aka contract rate) plus the 2% stress test amount comes in at less than the posted rate (4.89 as of today) they they’d use the 4.89% to qualify you. Whichever is higher. Make sense?

More simply put, although you have been offered and qualify for a rate that would have paying $2,467/mth but you’ll have to qualify for the mortgage based on a $3.020/mth payment on a $500K mortgage. That’s a 22.4% decrease in borrowing power. A significant amount.

We’re in the process of confirming whether the Banks will be enforcing this stress test prior to January 1st. We’ve currently spoken to TD and CIBC and are waiting to learn how they’ll be implementing this test.

No announcements have been made by lenders but our previous experience with rule changes was that lenders started underwriting to the new rules BEFORE the deadline. – Lee Welbanks Welbanks.com

Most previous mortgage changes were focussed on high ratio, insured Borrowers. This savage rule change applies to ALL Borrowers. Even if you have $500K cash to put down on a $700K property, you may not qualify for a measly $200K mortgage if your numbers don’t check out.

All news isn’t that bad though for some Sellers though. I believe some folks will be notched down into less expensive properties driving up demand for mid-market homes $500K-$800K. We can expect a lot more upward pressure on two bedroom condos regardless of size. Houses and Condos under a million dollars should continue to do well as there will be Buyers still fairly active in that area. 

We’ve seen a lot of first time Buyers skip the first couple steps on the property ladder over the past 3 years and go for the Dream Home right off the bat. Some will now not be able to afford to go for the gold right off the bat. I think we’ll see Buyers entering the market earlier and scaling down the “requirements” out of their first property.

I guess one could argue that these changes are necessary as a preventative measure to safeguard our economy from an en masse default should mortgage rates increase substantially in the future. We feel as though our financial institutions have already put enough safe guards in place making it very difficult to borrow money in this Country.

Although these changes don’t apply to mortgage renewals, they would apply if you try to “take your business elsewhere” giving you even less leverage when dealing with  your Lender come renewal time. Good luck negotiating a better rate then.

You can expect a lot more Self Employed people, first time buyers and Savers head to some of the B Lenders and Credit Unions that aren’t federally regulated over the coming years.

You can read the full report here and when you’ve keeled over of boredom, call me and I’ll fill you.