Mortgage Qualifying Changes- How Do They Affect You?
You’ve likely heard changes are imminent regarding mortgage qualifications. Maybe it was murmurs around the office, perhaps an article you read, but you know something is in the works- and something certainly is and will be effective Jan 1st, 2018.
First off, if you are considering buying or selling real estate in the near future, the changes shouldn’t spark panic, so let’s take a collective breath. However, they are significant and you need to be aware of their implications so that you can make the best decision for you going forward.
Let’s break it down.
The biggest change being made by the Office of Superintendent of Financial Institutions (OSFI) is in regards to the Qualifying rate stress test to all non-insured mortgages. A non insured (not backed by CMHC) mortgage or conventional mortgage is 20% down or greater (As opposed to an insured mortgage, subject to CMHC premiums, also known as a high ratio mortgage, which is less than 20% down). Currently, if you are a mortgage consumer putting down 20% or more, your lender qualifies you based on the contract rate (the actual rate). But, as of Jan 1st, you will be qualified on the higher of 2% above the contract rate or the Bank of Canada (BOC) rate, currently at 4.99%. With me so far?
Let’s talk fixed versus variable. If you were to get a 5 year fixed rate today for 3.3% (seems reasonable), you would be qualified based on that rate. As of Jan 1st, you will be qualified at 5.3%. The stress test applies to variable rates too, ergo, if today’s rate is roughly 2.75%, you would be qualified on the BOC rate of 4.99%. Remember, it’s the higher of 2% above the rate or the BOC rate.
What does this mean for the average buyer? With the new stress test, it could significantly reduce your buying power. If you are squeezing to get into a $600,000 home today, you’ll be looking more realistically at topping out at a $480,000 home in January. As the GTA becomes more and more unaffordable, this could definitely affect not only the type of home you buy, but where the home is.
If you were thinking of making a real estate move in the next 3-6 months, be sure to take the new OSFI rule changes into consideration.
And remember, I am always here to answer any questions and help any way I can.
Michael DeAngelis, Broker
RE/MAX Realtron Realty Inc.