NEW MORTGAGE RULES
Yesterday, the Office of the Superintendent of Financial Institutions Canada (OSFI) published the final version of Guideline B-20 (Residential Mortgage Underwriting Practices and Procedures).
The revised Guideline, which comes into effect on January 1, 2018, applies to all federally regulated financial institutions. One of the mortgage rule guidelines worth highlighting is as follows: OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages (Ex. Clients with more than 20% down, and Refinances).
- Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
PLEASE NOTE:
Although the rule doesn’t take effect until January 1st, 2018 in our opinion the banks might start enforcing it prior to that date as a trial run to get clients and staff accustomed to the change. If this is going to affect something you are doing in the near future we would suggest you speak with your mortgage professional sooner than later. We have professionals at each of the major banks along with brokers that would be more than happy to field your questions and give you clear and concise information. Please feel free to reach out to us at any time with questions or to be put in touch with a mortgage professional.
FAQ’S
Q: Will the rule changes affect my client’s current purchase and mortgage already approved with a bank/lender that is set to close after December 31st?
A: No, it will not affect your client. Banks/lenders will honour and close on all deals already approved and closing within the regular parameters of 120 days from the client’s approval date. Ex. Client’s purchase agreement is signed and dated October 15, 2017, and has a set closing date of January 25, 2018. The new rules will not impact this client.
Q: Will the rule changes affect my client’s current pre-approval that is already in place with a bank/lender if they do not have an accepted offer on a new home by December 31, 2017?
A: Yes. If your client does not have an accepted offer dated before January 1st, 2018, they will need to re-qualify under the new guidelines.
Q: Do the new rules affect our client’s wishing to just renew their mortgage with their existing bank/lender?
A: No. If your client does not require to increase their mortgage (called a “refinance”) andwant to renew their mortgage, the new rules will not impact their ability to do so.
Q: Do the rule changes affect a client’s ability to increase their current mortgage (known as a “refinance”)?
A: Yes. Any change to a client’s mortgage will require them to qualify under the new rules
Q: Does it impact clients who have less than 20% down (also known as a “High Ratio” or “CMHC” insured mortgages)
A: No. These clients are bound by the rules that were set last year, which requires us to qualify them under the Bank of Canada “Stress test” rate of 4.89%.Q: Do these rule changes apply to ALL lending institutions?
A: No. The rules were put in place for all lending institutions that are federally regulated and governed (all banks and trust companies). There are some provincially governed institutions, mainly the credit unions. While credit unions are not federally regulated, it is likely they will adopt the new rules….so while they are not REQUIRED to do so, it is likely they will.
We strongly suggest that you speak with a mortgage professional to understand how this might impact your personal mortgage financing.
Please click on the following link for full details on the mortgage rule change:
http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/Pages/B20_dft_nr.aspx
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