By now most consumer are aware that there are new stress-tests coming into effect for mortgages soon but exactly how it will work still seems to be a source of confusion.
Essentially, the OSFI wants all federally chartered banks to qualify all mortgage borrowers using a rate that is higher than contracted mortgage rate, depending on your specific situation this may be 2% over the rate on your contract or the Bank of Canada Benchmark rate.
Ironically people with larger down payments may be held to more stringent stress-testing than people with the minimum 5% down.
Here is a simplified example of what the new rules will mean for you.
Conventional: 20% or more down payment
Insurable: regardless of what term or amortization you choose you can be qualified using insurer guidelines and therefore the Bank of Canada Benchmark rate is the qualifying rate (currently 4.99%)
Uninsurable: you cannot qualify using insurer guidelines and therefore 2% over contract must be used instead.
General insurable guidelines:
- Maximum 25 year amortization
- Maximum property value under 1 million
- Owner occupied- no rentals
- Where applicable the lender pays the portfolio insurance
Uninsurable Conventional Purchase Scenario
Below rates assumed for an uninsured conventional purchase
Total Family Income $100k
Mortgage rate Mortgage Qualifying Rate Mortgage Qualifying Amount
3.49% 3.49% $431,084
3.49% 5.49% (contract +2%) $352,569
You will qualify for over $78, 000 more if you have a commitment prior to December 31, 2017
Insurable Conventional Purchase Scenario
Below rates assumed for a conventional purchase
Total Family Income $100k
Mortgage rate Mortgage Qualifying Rate Mortgage Qualifying Amount
3.34% 3.34% $438,004
3.34% 4.99% (BOC Benchmark) $370,028
You will qualify for almost $68,000 more if you have a commitment prior to December 31, 2017
Still confused? Contact me to assess your specific situation!
