The Office of the Superintendent of Financial Institutions (OSFI) issued a revision to Guideline B-20 on October 17, 2017. The changes will go into effect on January 1, 2018, and will require conventional mortgages (more than 20% down payment) to qualify at the GREATER OF the Bank of Canada’s (BoC) five-year benchmark rate (currently 4.99%) OR the customer’s mortgage interest rate plus 2%. Up until now, only high ratio mortgages (less than 20% down payment) have to qualify at the BoC rate on a 25 Year Term. This rule will now apply to all mortgages.
OSFI is implementing these changes for all federally regulated financial institutions. As a result, some customers looking to purchase a home or refinance may experience a reduction in the total principal amount they are qualified to borrow.
How does this effect Canadian’s?
Expect the average Canadian’s home purchasing power for a given income to be reduced 15-20%.
Here’s an example of the impact the new qualifying rate will have on the maximum mortgage proceeds and home purchase price. Amounts are based upon a combined Canadian family income of $75,000, 5-year fixed term mortgage at a contractual rate of 3.39%, 25-year amortization, $100,000 available for down payment and $700 in other monthly debt obligations:
|Up to December 31, 2017||After January 1, 2018|
|Maximum Mortgage Amount||$400,000||$325,000|
|Available Down Payment||$100,000||$100,000|
|Home Purchase Price||$ 500,000||$425,000|
A customer’s maximum mortgage amount will also be influenced by other factors including the mortgage product, the term selected, amortization period, other debt obligations and the credit scores.
How will Banks manage current applications?
Changes to existing policies and procedures may impact applications initiated before or after January 1, 2018.
|Timeline:||Pre-Approval:||Purchase Transactions or Refinances:|
|Before January 1, 2018||Pre-Approvals committed before January 1st will remain valid up to 120 days following the initial credit decision.||Approved applications closing before or beyond January 1stwill remain valid; no re-adjudication is required as a result of the qualifying rate update.|
|On and after
January 1, 2018
|Any material changes to the request post January 1st may require re-adjudication using updated qualifying rates.||Material changes to the request post January 1st may require re-adjudication using updated qualifying rate rules.|
Additional information will be shared as it becomes available.