The Office of the Superintendent of Financial Institutions (OFSI) has released its finalized B-20 Update to the mortgage industry. Below is a quick summary of the new changes that will go into effect January 2018.
1. A new minimum qualifying rate, or “stress test” for uninsured mortgages (mortgages where clients are putting 20% or more down). B-20 now requires mortgage clients to qualify on a minimum rate based on the greater of the five year Bank of Canada rate or the contract mortgage rate +2%.
2. Lenders are now required to enhance their loan to value (LTV) measurement and limits so they will be dynamic/fluid and responsive to risk. This means lenders must establish and adhere to appropriate LTV ratio limits that are reflective of risk and can be updated as housing markets and the economic environment evolve.
3. OSFI is placing new restrictions on lending arrangements that appear designed to circumvent LTV limits. ie Mortgage Bundling. Lenders are prohibited from arranging mortgages with other lenders, including the combination of a mortgage and other lending products in any form that exceeds the institution’s maximum LTV ratio. This applies to limits in its residential mortgage underwriting policy and any requirements established by law.
These changes will be mandated for all federally regulated lenders but are expected to become applicable for any lenders that are also using funds from federally regulated lenders to fund mortgage products within their own mortgage portfolios. It will be interesting to see if Credit Unions (which are provincially regulated) adopt these new criteria in the coming months as well.
So what does this all mean? Well, for starters, it will now become more difficult to qualify for a mortgage. The stress test is applied to any mortgage applicant, regardless of how much down payment or equity they have.
As for prices, this could either bring prices down OR further increase values IF supply/listings trend lower, due to the inability of home owners to obtain new mortgages.
For clients coming up for renewal, you will not be subject to the new rules UNLESS you want to transfer your mortgage to another lender.
As these rules don’t come into effect until January 1st, we now have a window of opportunity to sell, buy or refinance under today’s more favourable rules. If you are considering any of those options, please give us a call or email ASAP to discuss further.
Have a great day!
Cindy, Mike and the Coastal Mortgages’ / BrokerSmart Real Estate Services Team