Changes to Mortgage Lending Guidelines May be on the Horizon

Are you thinking of buying a home soon? The federal government has proposed changes to mortgage lending guidelines that may affect you. The changes are aimed at reducing the financial risks associated with Canada's heated housing markets.

Currently, there is a 'stress test' applied to insured mortgages. That rule requires homebuyers with less than a 20% deposit to qualify at the Bank of Canada's posted rate (typically higher than offered rates). The proposed guidelines may also include a similar test for uninsured mortgages, which are loans secured with a deposit of at least 20% on the value of the home. This change could mean that homebuyers will have to show they can afford a 2% increase on the interest rate for which they are approved. According to an example from cbc.ca, a buyer looking to secure a mortgage with 20% down on a $1M home at 3% interest rate would have to prove they could pay up to $4,652 per month instead of the $3,786 on their contract — a difference of $866 per month. This would apply to both variable and fixed-rate mortgages, regardless of term.

These proposed guideline changes were drafted this past July by the Office of the Superintendent of Financial Institutions (OSFI). The public was invited to give feedback on the proposed changed up until August 17. Once OSFI has reviewed the feedback, they will finalize the guidelines and set an effective date for later in 2017. Federally regulated financial institutions would be expected to follow these guidelines once implemented. Though nothing has been announced yet, it might be a good idea to prepare as these changes could make it more difficult to secure a mortgage.

We'll keep an eye on the possible changes. For now, you can get more information from OSFI (link to http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/Pages/B20_dft_nr.aspx)

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