What that could mean for you:
You may have heard recently that the OSFI (Office of The Superintendent of Financial Institutions, Canada’s Federal Financial Industry Regulator) is proposing a change to the stress test rate that will affect who can qualify for an uninsured mortgage. OSFI’s stated mission is contributing to the safety and soundness of the Canadian financial system. Should it be approved, the mortgage qualification process will become less lenient.
Have questions? We have the answers you need to know if and how this change will affect you.
Are you planning on putting less than 20% down on your next home?
Carry on unworried — this change doesn’t affect you.
Are you planning on putting more than a 20% down payment on your next purchase?
If you fall into this category, these adjustments could change your approval process.
Currently, those applying for an uninsured mortgage must meet a stress test of payments at a rate of 4.79% up to a 30-year amortization. The proposed changes would move that up to 5.25% over 30 years or the same period. By increasing this test by 0.46%, fewer people will meet the approval requirements for applicants with a down payment of 20% or more.
This restriction will affect about 5% of Borrowing Power. The change on January 1, 2018, reduced borrowing power by 35%. Today’s proposed change would reduce your ability to purchase a $990,000 home by $49,500.
This policy only affects federally regulated institutions. Of the 70 + lenders we deal with, many are provincially regulated and therefore exempt.
Some Resolutions to Consider:
- Putting More Money Down – This lowers your debt ratio.
- Buying a Cheaper Home – OSFI may inadvertently be accelerating the urban flight.
- Extending the Amortization – This lowers your payments, which makes it easier to get approved.
- Buying with a Co-Borrower – This adds more income to a mortgage application and lowers your debt ratio, again making it easier to qualify.
- Using a Non-Federally Regulated Lender – Some credit unions and alternative lenders do not use the federal stress test (note that their interest rates will be higher).
- Choosing a Reverse Mortgage – More seniors who are cash-strapped but equity-rich could turn from traditional financing to reverse mortgages, which are not stress tested.
Why is this happening?
Right now, interest rates are at an all-time low. Should these rates begin to increase as the economy stabilizes in the wake of COVID-19, many people who qualified for a mortgage under a very low-stress test may not be able to repay their debt. This would cause more pressure on a fragile, recovering landscape.
Get Prepared for Your Next Mortgage
Are you looking to purchase a home in the near future? Gerard of GerardBuckley.ca Mortgage Broker and his team offer an unmatched dedication of service to the client experience, treating every mortgage deal as if it were his own.
Get the information you need to make your next home purchase a success by contacting Gerard today at 866-496-4028.
Ready to see where you stand? Get your online prequalification here.