The country’s federal banking regulator is tightening rules on mortgage stress tests for homebuyers with uninsured mortgages beginning June 1.
The minimum qualifying rate for uninsured home loans – residential mortgages with a down payment of 20% or more – will increase to either the contracted rate plus two percentage points or 5.25 per cent, whichever is higher.
As it stands, any purchaser whose initial down payment on a house is one-fifth of the purchase price or more needs to show they can afford mortgage payments if the interest rate was two percentage points higher than what the bank is offering them or the five-year benchmark rate published by the Bank of Canada, which sits at 4.79 per cent — whichever is higher.
The Office of the Superintendent of Financial Institutions (OSFI) affirmed the changes in a release Thursday after it assessed submissions on the plan that it previously proposed in April.
“The rate set up as of June 1, 2021 will help support monetary versatility should financial conditions change, while our obligation to survey the passing rate at any rate every year will add to proceeded with trust in the Canadian monetary framework,” Ben Gully, OSFI partner director of guideline, said in a release.
“In a muddled and at times unpredictable real estate market, the requirement for sound mortgage underwriting can’t be underestimated.”
The tougher stress test will make it more hard to qualify for a mortgage temporarily, as indicated by James Laird, co-founder of Ratehub.ca and leader of CanWise Financial.
“At all income levels, this change lessens the amount of a mortgage a family can qualify for by around five percent,” he said in a statement.
After OSFI’s declaration, Deputy Prime Minister and Finance Minister Chrystia Freeland said in a statement the new standards will likewise apply to insured home loans – mortgages with an initial installment of under 20%.
“The federal government will align with OSFI by establishing a new minimum qualifying rate for insured mortgages, subject to review and periodic adjustment, which will be the greater of the borrower’s mortgage contract rate plus 2 per cent, or 5.25 per cent,” she said.
“It is imperatively significant that homeownership stay accessible for Canadians. We realize that we need to make a vivacious move on housing supply and affordability in Canada.”
Laird says Canadians currently looking to buy a home should ensure they secure their mortgage pre-approval prior to June 1 as OSFI will allow lenders, at their discretion, to grandfather the current stress test rate.
The same goes for anyone who has already purchased a home and anyone looking to refinance.
OSFI also said that it would review and communicate the qualifying rate at least once per year — each December — well ahead of the spring selling season.
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