There isn’t much doubt that more significant mortgage rule changes are on the way, perhaps as early as Oct. 2.
Canada’s banking regulator, OSFI (the Office of the Superintendent of Financial Institutions), is attempting to cool down certain hot housing markets by implementing a stress test to qualify for uninsured mortgages.
The new stress test will require a qualifying rate of two per cent over the contract rate.
Uninsured mortgages account for approximately 65 per cent or more of the mortgage market in Canada. Typically an uninsured mortgage is one where there is 20 per cent or more equity in a property.
These changes will also affect home equity lines of credit.
OSFI is also proposing that more prudent underwriting criteria be used for uninsured mortgages including more caution in certain markets when calculating the value of properties which will determine the amount being lent out to clients.
This could restrict the allowable loan values in different areas of the country.
What does this mean for the average Canadian buying a home?
It is quickly going to become even more difficult to qualify for mortgage financing and potentially your buying power will be further reduced by approximately 25 per cent.
It is not only homebuyers who will be affected by these changes. Here are some other scenarios where these changes could potentially cause you some grief.
If you have consumer debt other than your mortgage, now is the time to consider accessing the equity you have in your property. By restructuring your mortgage debt you could significantly save on interest costs and reduce your monthly payments.
If you are considering accessing equity for investment purposes to plan for retirement, call us now before the rule changes happen.
If your current mortgage is up for renewal sometime within the next year, a review of today’s best options is in order to ensure you are positioned correctly before the changes happen.
Have you been considering renovations to your home? Now, is the time to ensure you are set up to access the equity in your home to complete those improvements to your property.
BUYING AN INVESTMENT PROPERTY
Now would be the time to ensure you can still access equity in your properties if you require that equity to purchase an investment property.
With the proposed changes the following information may not matter when it comes to qualifying for a mortgage:
• That you have excellent credit
• A large down payment
• A long established relationship with your current financial institution
• Excellent net worth – savings, investments, equity in other real estate