New Stress-Test Rules for 20%+ Down Payments

A mortgage stress test has been implemented by Office of Superintendent of Financial Institutions (OSFI) that will be in effect as of January 1st, 2018 intended to effect buyers with “uninsured mortgages.” (Generally, when someone puts a down payment of more than 20%, they don’t require mortgage insurance. Therefore, these mortgages are uninsured.)

Buyers with uninsured mortgages will need to prove that they can afford payments based on the greater of:

  •  the Bank of Canada’s five-year benchmark rate (currently 4.89% as of Oct 19th 2017)
  • or their contract mortgage rate plus two percentage points

What does this mean to you? The properties that you can qualify for will now be lower in value. Take a look at this example:

Mortgage rate comparison website published a scenario looking at the impact of the stress test rule on a family earning $100,000 putting down a 20% down payment on a 3.09% 5-year fixed rate amortized over 25 year. Under the current rules, that family could qualify for a house worth $706,692, but after the new rules take effect in 2018, that family would only qualify for a house worth $559,896 based on a 4.89% stress test.

If you wish to get mortgage financing or are looking to refinance before these new stress test changes go into effect, please message me ASAP!

The additional changes, which are directed at federally regulated lenders, stipulate that:

  • Lenders will be required to enhance their loan-to-value measurement and adhere to appropriate LTV ratio limits “that are reflective of risk and are updated as housing markets and the economic environment evolve.”
  • Financial institutions will be prohibited from arranging a mortgage, or combination of a mortgage and other lending products, with another lender where the intent is to circumvent LTV ratio limits. But mortgage agents/brokers can still do it, so long as the borrower qualifies for both mortgages (i.e., their debt ratios meet both the first mortgage lender’s and second mortgage lender’s guidelines).

If you are looking to refinance leaving less than 20% equity in your property, you need to find a mortgage agent who will help you do that. I have access to numerous second mortgage lenders who are comfortable with high LTV ratios. This means you can access more money. Message me today for a personalized solution to your unique situation.

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