Office of the Superintendent of Financial Institutions (Canada’s Banking regulator) have announced three new rules related to a mortgage which will be in effect in 2018 and its now going to get harder for some home buyers to get a mortgage this year. These rules will mostly affect the first-time buyers and those who are looking forward to refinance their homes in 2018.
One rule which was announced is the Stress Test which is now applied to all prospective homebuyers. Before this rule, this test was only applicable for those who made a down payment of less than 20% but that’s now the case anymore.
Due to introducing this new and harder rule now it doesn’t matter how much you are saving for the down payment, you still have to pass the new stress test, or otherwise the bank will not give you a mortgage.
For home buyers to qualify for a mortgage under the new stress test, the qualifying rate will be the minimum and equal to the Bank of Canada’s five-year benchmark rate or their contractual rate plus two percentage points. This means if you are planning to buy a new house in 2018, you will have to settle for a less expensive one you could afford. Another thing that can be done is you can wait and save for a larger down payment.
Another new rule is that now the Loan to value (LTV) needs to be adjusted to the local market conditions. Big banks of Canada use LTV to check how risky a loan is and the higher the LTV, the higher risky is the loan.
The new rules that are in effect since January 2018, will damage the growing Canadian Mortgage market segment. Due to the new stress test, it is estimated that the purchasing power of a family could be lowered by up to 21%.
If you are a new buyer, you should not be that much worried because there are other options available, like you can opt for a townhouse or a condo. It should also be kept in mind that these strict mortgage rules only apply to those who are looking to secure a mortgage with one of Canada’s federally regulated mortgage lenders.