New guidelines for qualifying for a mortgage came into effect this month. How will this impact your buying power and what does it mean to you?
What are the changes?
Canada’s banking watchdog, the Office of the Superintendent of Financial Institutions (OSFI) announced last fall that as of 2018, customers must qualify for a mortgage at the 5-year benchmark or the current rate plus 2% (whichever is greater). Known as the B-20 guidelines, this stress requires that your debt-to-income ratio maintains within a certain threshold.
The stress test will also be required for buyers who have a downpayment higher than 20% (even though it exempts them from requiring mortgage insurance).
For the last number of years, interest rates have remained low. But, they are climbing slowly once again. Essentially OSFI wants to place more rigor around the stress test to ensure Canadians are not living beyond their means and will not suffer if interest rates climb.
The financial industry expects that this will impact the size of mortgages Canadians will qualify for.
Note that these changes impact federally regulated financial institutions only. Lenders, such as provincially regulated credit unions and caisses populaires are not required to follow these guidelines.
What can you do?
If you’re interested in buying a home this year, start talking to a mortgage broker as soon as possible. Current mortgage rates are still relatively low, so it’s best to start the process sooner rather than later. A qualified mortgage specialist can explain the mortgage process and help you understand where you’re at with your current financial situation.
There are many creative and outside-the-box solutions available, but you won’t know until you go. With the help of an expert you’ll be one step closer to your home ownership goals.
If you need help navigating the new rules, contact me and I’ll be happy connect you with one of my trusted mortgage experts.