Wednesday, December 7, 2022, Tom Gasparec

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Hi Valued Client,

 

  We communicated last week that new stress test rules for mortgage financing could be confirmed as of June 1st. Its now official! 

Canada’s top banking regulator, the Office of the Superintendent of Financial Institutions (OSFI) has announced that they will be proceeding in implementing proposed change(s) to the mortgage qualifying rules come June 1, 2021.

The minimum qualifying rate for both Insured (mortgages with a downpayment under 20% / backed by a mortgage insurer ie (CMHC/Sagen) and Uninsured mortgages (residential mortgages with a down payment of 20% or more) will become: the mortgage contract rate (the rate offered on your mortgage loan) plus 2% or 5.25% - whichever is greater.

Raising the qualifying rate for potential buyers could result in qualifying for a lower purchase price. It is important to remember however, that this changes does not increase actual costs to borrow, and because the rules apply to all Canadian borrowers, the playing field remains a level one.

The last round of mortgage rule changes (in 2018) introduced the “stress-test” for uninsured mortgages and was preceded by a flurry of last-minute buying. It's anticipated this latest announcement could again spur this type of activity.

The stress-test was implemented as a means of ensuring borrowers do not bite off more than they can chew. It is the metric used to qualify would-be home buyers for a mortgage loan; whereby potential borrowers must demonstrate they have the ability to cover their mortgage payments in the event rates rise much higher than when they apply for the mortgage.

There were rumblings that OSFI was planning to revisit the “stress-test” benchmarks prior to the Covid pandemic. Ben Gully, Assistant Superintendent, Regulation had to say this regarding today's announcement, "In a complicated and sometimes volatile housing market, the need for sound mortgage underwriting cannot be underestimated. The rate in place as of June 1, 2021 will help support financial resilience should economic circumstances change, while our commitment to review the qualifying rate at least annually will contribute to continued confidence in the Canadian financial system."

Qualification Now:

Insured borrowers (those with between a 5.00-19.99% down payment):
These borrowers must qualify at the 5-year benchmark rate; currently sitting at 4.79% and are subject to a Mortgage Default Insurance Premium (aka “CMHC fee”).

Uninsured borrowers (those with 20% or more down payment):
These borrowers are not required to pay a default premium and must qualify at the Bank of Canada benchmark rate (currently 4.79%) or the contract rate + two percentage points; whichever is greater.


Qualification come June 1:

Both Insured and Uninsured mortgages will be required to qualify at the contract rate + 2% or 5.25% (whichever is greater).

If you are concerned with the change to your purchasing power please contact us to run the numbers for you. Chances are the impact will be less than you imagine.

We are committed to providing you with sound advice and continue to have access to numerous lending options. We will look at the whole picture and build a mortgage plan to meet your needs, whether that’s for the home you purchase today, or the one you purchase after June 1.


Your mortgage advisor for life,
 
Tom Gasparec, AMP 
Mortgage Agent
Toll Free: 1 866 492 4024

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MORTGAGE PAYMENT DEFERRAL

For many homeowners with mortgages, there's help, but first assess your situation.

If you can pay your mortgage, pay your mortgage. Don't call your mortgage lender if you do not have an immediate issue.  Lenders are inundated with lots of call and need to first help those who will not be able to pay their mortgage.  Check the lender website for possible options.  

If you cannot pay your mortgage, or can only pay a portion, contact your lender immediately. 

This Canada Mortgage & Housing Corporation article  answers your questions on how these deferrals actually work and their options.  

Some positive news; 

Interest rates are slowly declining once again to all time record lows as the volatility in credit markets is reduced. 

This provides opportunities for several thousands of $$$$$ in interest savings when optimizing your current mortgage.


The sun is starting to shine, we will all get through this together! 

Be Safe!