By now you may have heard the news regarding the upcoming mortgage changes. These mortgage rule changes are expected to have a significant impact on our housing and mortgage market. Please read our summary below to determine if this change will affect you.
The mortgage rule changes are effective on January 1st, 2018.
What are the rule changes?
Under OSFI's (Office of the Superintendent of Financial Institutions) new rules, borrowers with a 20% downpayment will be “stress tested” when applying for a new mortgage. Also, anyone who is considering an equity takeout on their home (or otherwise known as refinance), will also be subject to the stress test.
What is a Stress Test?
The “Stress Test” is OSFI’s way of making sure the borrower (you), can withstand a higher mortgage payment if interest rates increase. The “stress test” is set at 2% more than what you’ll actually pay. For example, if your mortgage rate is 3%, you’ll have to qualify for a 5% interest rate payment.
Under the existing rules, if you qualify right now for a maximum mortgage amount of $300,000 , you may only qualify for $260,000 under the new rules.
Most importantly, will this rule change affect you?
- If you have 20% downpayment and are preapproved, the rule changes will affect you.
- If you own your home and are planning on refinancing, the rule changes will lower the amount you are eligible to borrow. (You may want to refinance your mortgage to pay off outstanding unsecured debts or pay for a renovation.)