January 1 is fast approaching, do you know how the new changes may affect you?

In October, OSFI implemented 3 new mortgage rule changes starting January 1, 2018.  Here are the changes and what it means for buyers and homeowners.

1) Qualifying Rate Stress Test for all uninsured mortgages

Uninsured mortgage consumers must now qualify using a new minimum qualifying rate. The rate will be the greater of the five-year benchmark rate published by the Bank of Canada OR the lender contractual mortgage rate +2.0%.

How does this affect the mortgage consumer?  The biggest impact will be on the amount for which the home buyer/owner will be able to qualify. Previously, the home buyer/owner qualified at the contract rate offered by the lender. While the actual mortgage payment will still be paid at the contract rate, a higher calculation will be used for qualification purposes.  This means approximately 20% less purchasing power.  It will also affects current mortgage holders looking to refinance or transfer who will now need to qualify at the higher rate.

2) Lenders will be required to enhance their loan-to-value (LTV) measurement in certain areas

Mortgage lenders (excluding credit unions and private lenders) must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve.

How does this affect the mortgage consumer?  OSFI directs lenders (excluding credit unions and private lenders) to have internal risk management protocols in higher priced markets like Toronto and Vancouver. This is a continuation of a policy already in place. Many mortgage lenders have been following the principles of the policy already and it affects regional markets differently.  Currently this policy does not have an affect on our local market.

3) Restrictions will be placed on certain lending arrangements that are designed to avoid LTV limits

Mortgage lenders (excluding credit unions and private lenders) are prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the lenders maximum LTV ratio.

How does this affect the mortgage consumer?  Right now many Alternative lenders policy will only allow them to lender to certain LTV maximums.  They bundle the remaining amount with secondary lenders to get clients to a desired LTV which is no longer allowed.  This will mean less options for non-prime borrowers moving forward.

There is no longer one solution/rate for everyone.   These changes made in the last 2 years can affect each borrower differently.  Now, more than ever clients will need to rely on their mortgage brokers for guidance as we navigate through this ever changing mortgage lending space.