Mortgage Stress Test takes effect January 1, 2018

 

The Office of the Superintendant of Financial Institutions (OFSI) is expected to be implementing new Mortgage Qualification “Stress Test” Rules, effective Jan 01, 2018. Simply put, uninsured mortgage applications MUST be qualified at the HIGHER OF the Bank of Canada’s posted 5 Year Rate (which today is 4.99%) or the Contract Rate + 2%. This will have a significant impact on what buyers will be able to afford today vs. in January, 2018 going forward. Here is an Example: 

 

November 15, 2017, Buyer A: 

 

 Family Income $120K, No other relevant debts, 

 

 Depositing 20% of the Purchase Price from their own Savings, 

 

 Contract Rate of 3.15% (Meridian’s 5-Year Rate), 

 

 They would be qualified for a Purchase Price of $685,773.00 

 

January 1, 2018, Buyer B: 

 

 Family Income $120K, No other relevant debts, 

 

 Depositing 20% of the Purchase Price from their own Savings, 

 

 Contract Rate of 3.15% (Meridian’s 5-Year Rate), 

 

 They would be qualified for a Purchase Price of $553,747.00 or Approx. 20% LESS than before! 

 

How could that be? Here’s why. buyer A was qualified at the Contract Rate of 3.15% while buyer B had to be qualified at the Stress Test Rate of 3.15% + 2% = 5.15%. 

Essentially, the Purchasing Power for an Uninsured Applicant will diminish by approx. 20%. And there is more. If someone with an existing Mortgage wishes to switch Lenders (better Rates, for example) they will have to be qualified under the new Stress Test Rules to be able to switch. So what can we expect? Renewal Rates aren’t going to be terribly attractive, as it will be much more difficult to leave the incumbent lender. 

 

Information courtesy of Chris Maxwell-Smith 

Mobile Mortgage Specialist 

Serving the GTA, Mississauga, Oakville, Burlington and Surrounding Areas 

Cell: 647-234-5575 

Work: 647-261-2935 

chris.maxwellsmith@ 

meridiancu.ca