As we head into the fall market and after 1 year since the last mortgage rule changes, OFSI (the governing body in Canada for financial services) are proposing yet another mortgage rule change that may impact your home buying purchasing limits. OFSI has proposed changes to the Guideline B-20 Residential Mortgage Underwriting Practices and Procedures (referred to as B-20 – www.osfi-bsif.gc.ca/Eng/fi-if/in-ai/Pages/rfmrm.aspx). The most concerning change would be imposing a 200 basis point qualifying stress test for all uninsured mortgages.
What does this mean for the buyer?
Even if you placed a 50% downpayment, you would be required to qualify for the mortgage based on a rate 2% higher than the actual mortgage rate you would be obtaining. So, if the actual rate you were obtaining today were lets say 2.99%, you would have to qualify for the mortgage based on a rate of 4.99%( 2.99% + 2% for qualifying rule = 4.99%)
This higher qualifying rate would essentially reduce the amount of mortgage you could qualify for and hence reduce the eligible purchase price for a new home. On average this would reduce your buying power by approximately 14%.
Here is an example of the reduction in buying power:
-Clients are selling home and buying a new one
-Household Income: $120,000 per year
-Down payment: Up to $180,000(they want to put at least 20% down)
$120K Annual Income/20% down
- 2.99%, 30 year amortization.
- Max Purchase Price $900K
- Down payment $180K
- Max mortgage $720K
- 4.99%, 30 year amortization.
- Max Purchase Price $800k
- Down Payment $180K
- Max Mortgage $620K
While this is still in the proposal stage, we anticipate this coming into effect mid to end of October 2017. The good news is as a buyer you can prepare for these changes ahead of time. Even if you are only just “thinking” of buying and/or selling, with these new rule changes on the horizon, it is better to look ahead and prepare, than to look back and regret.
By consulting with a Mortgage Professional such as the team at Tribe Financial Group (http://tribefinancial.com/the-tribe/), we can work with you to create the optimum mortgage plan and pre-approve you before these rules come into effect. Contact us today for your free home financing advice; at Tribe Financial there is strength in numbers, and you belong.