News and Education
Recent Mortgage Rule Changes
Recent mortgage rule changes
There had been speculation that the government would act to cool the hot housing market, but the industry saw only modest measures in the April 19 federal budget. A national annual tax on foreign-owned properties that are left vacant or under-occupied was announced, which will take affect in 2022. This will only apply to "non-residents” to discourage offshore buyers.
New stress test. The budget also referenced the recent announcement by the Office of the Superintendent of Financial Institutions (OSFI), which is proposing a new stress test rate for uninsured mortgages of 5.25% effective June 1. This is higher than the current 4.79% and, going forward, will no longer be based on bank posted rates. It will be set a minimum of once per year by OSFI.
What is the stress test? When getting a new mortgage, lenders must ensure that you pass a stress test, which means that you can handle payments at a certain qualifying rate. This is not the same rate as your actual contract rate, it’s for mortgage qualifying only.
Why June 1 matters. Uninsured mortgages (i.e. when you have more than 20% equity) approved before June 1 are not subject to this tougher stress test so qualifying will be slightly easier. This applies to purchases that close after June 1 with a signed purchase and sale agreement. As a result, if you are thinking refinance to get a lower rate or for debt consolidation, or a purchase with more than 20% down, it’s a good idea to get in touch so we can discuss your situation.
What about high-ratio mortgages (i.e. less than 20% down)? This stress test has not changed but it is certainly possible that it may also become slightly tougher at some point. If you are looking to purchase, get a pre-approval so you are house shopping within your budget and have rate protection. It’s important to purchase when you are financially ready and not be driven by market conditions.
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