As many of you may remember, this past October the Office of the Superintendent of Financial Institutions (OSFI) issued a revision to Guideline B-20 . The changes will go into effect on January 1, 2018 but lenders are expecting to roll this rules out to their consumers between December 7th – 15th, and will require conventional mortgage applicants to qualify at the Bank of Canada’s five-year benchmark rate or the customer’s mortgage interest rate +2%, whichever is greater.
OSFI is implementing these changes for all federally regulated financial institutions. What this means is that certain clients looking to purchase a home or refinance their current mortgage could have their borrowing power reduced.
WHAT TO EXPECT
It is expected that the average Canadian’s home purchasing power for any given income bracket will see their borrowing power and/or buying power reduced 15-25%. Here is an example of the impact the new rules will have on buying a home and refinancing a home.
PURCHASING A NEW HOME
When purchasing a new home with these new guidelines, borrowing power is also restricted. Using the scenario of a dual income family making a combined annual income of $85,000 the borrowing amount would be:
| Up To December 31 2017 | After January 1 2018 | |
| Target Rate | 3.34% | 3.34% |
| Qualifying Rate | 3.34% | 5.34% |
| Maximum Mortgage Amount | $560,000 | $455,000 |
| Available Down Payment | $100,000 | $100,000 |
| Home Purchase Price | $660,000 | $555,000 |
REFINANCING A MORTGAGE
A dual-income family with a combined annual income of $85,000.00. The current value of their home is $700,000. They have a remaining mortgage balance of $415,000 and lenders will refinance to a maximum of 80% LTV. The maximum amount available is: $560,000 minus the existing mortgage gives you $145,000 available in the equity of the home, provided you qualify to borrow it.
| Up to December 31, 2017 | After January 1 2018 | |
| Target Rate | 3.34% | 3.34% |
| Qualifying Rate | 3.34% | 5.34% |
| Maximum Amount Available to Borrow | $560,000 | $560,000 |
| Remaining Mortgage Balance | $415,000 | $415,000 |
| Equity Able to Qualify For | $145,000 | $40,000 |
IN TRANSIT PURCHASE/REFINANCE
If you have a current purchase or refinance in motion with a federally regulated institution you can expect something similar to the below. A note, these new guidelines are not being recognized by provincially regulated lenders (i.e credit unions) but are expected to follow these new guidelines in due time.
| Timeline: | Purchase Transactions or Refinances: | |
| Before January 1, 2018 | Approved applications closing before or beyond January 1st will remain valid; no re-adjudication is required as a result of the qualifying rate update. |
|
| On and after January 1, 2018 |
Material changes to the request post January 1stmay require re-adjudication using updated qualifying rate rules. |
Source (TD Canada Trust)
These changes are significant and they will have different implications for different people. Whether you are refinancing or purchasing, these changes could potentially impact you. We advise that if you do have any questions, concerns or want to know more that you contact your mortgage broker. They can advise on the best course of action for your unique situation and can help guide you through this next round of mortgage changes.
