Stricter Mortgage Rules in January 2018

Home buyers in BC and across Canada should be aware of strict new mortgage qualification rules coming into force in January 2018. 

These new rules will require that all mortgages being taken out by home buyers must pass the same “stress-test” that was implemented this fall for high-ratio or insured mortgages (i.e. mortgages with a downpayment of 20% or less).

This “stress test” means that you will have to income-qualify at the Bank of Canada five-year posted interest rate, (currently 4.89%) which tends to be notably higher than the rate mortgage lenders are currently charging.

The Office of the Superintendent of Financial Institutions (OSFI), the federal agency in charge of maintaining the stability of the Canadian banking system, implemented these new rules to prevent consumers from taking on too much mortgage debt and to also protect them should interest rates go up. What the “stress-test” accomplishes is that it ensures homeowners can afford to pay their mortgage loans even if rates go up.

However, some lenders, such as provincial credit unions including Vancity, Coast Capital and Prospera, do not come under OSFI’s federal jurisdiction and therefore they are not obligated to implement these new mortgage rules.  Credit unions in BC are currently not required to “stress test” their mortgage applicants in the way federally regulated banks are.

How will this impact you if you are buying or selling your home in 2018?

For home buyers, the biggest effect will be on the amount of mortgage loan that the home buyer will be able to qualify for and obtain from their lender.  Mortgage professionals predict that this new policy will reduce Canadians’ home-purchasing power by around 20%, as the higher interest rate will reduce the maximum mortgage that buyers will be able to borrow. If you are selling your home, some analysts are predicting that it may cool housing prices, particularly in expensive housing markets such as Vancouver.

For more information on what this new stress-test will mean for you, take to your mortgage broker or lender.

The following are some articles regarding the new mortgage rules or stress-tests

http://www.rew.ca/news/new-mortgage-stress-test-for-all-will-do-more-harm-than-good-1.23061932

http://www.moneysense.ca/news/what-the-new-mortgage-rules-mean-for-homebuyers-in-2018/

http://www.cbc.ca/news/business/osfi-mortgage-rules-1.4358048