Are you a Canadian homeowner? A first time home buyer? Do you see yourself purchasing a home for your family in the near, foreseeable future? If you’ve answered “yes” to any of these questions, or have considered tapping into the real estate market in the New Year, we advise you to keep reading as the time has come, once again, for the Canadian mortgage rules to change. Effective January 1st of next year, the Office of the Superintendent of Financial Institutions (OSFI) will be implementing new mortgage regulations that will ultimately reduce purchasing power on conventional purchases and refinancing of all homes. Of course, as word of these new regulations surface, so do the several pressing questions from anxious homeowners, and expected home-owners-to-be, on how these changes will affect them, and what we’ll all need to know as we enter into the New Year.
Essentially, the new qualifying mortgage rules will require home buyers to qualify at a rate that is 2% higher than that of their negotiated or contract rate – ensuring that the majority of home owners pay a minimum of 20% on a down payment, in addition to having the sustainable ability to afford ongoing payments. The bulk of these measures are to confirm that banks are “lending money to home buyers who can manage their loans even if interest rates rise … [thus] reducing the banks’ reliance on loan-to-value calculations in markets where home prices are rising quite rapidly”. According to Jeremy Rudin, Superintendent of Financial Institutions, the risks that coincide with the stress of these new regulations are clear. Yet, rather than waiting upon potential debts and defaults in an otherwise rising market, his approach is to adapt their standards to new developments.
Here’s an overview as to who might feel the greatest impact with respect to these new changes, effective January 1st, 2018:
- Those who do not meet the regular bank-lending criteria, and therefore work with an alternate lender. These lenders will likely charge higher rates and, as a result, have a higher level of risk pertaining, but not limited to, such circumstances as credit and/or qualifying income.
- Home buyers who would have otherwise needed to meet the bank-lending criteria, but are now required to qualify at an above-contract level or 2%. Potential outcomes? Opting for shorter or variable terms.
- Those who are looking to either purchase a home with a 20% down payment, or refinancing their existing homes. All considerations might want to be thoroughly revisited prior to the New Year.
Needless to say, there is an ample amount of new information that could be relevant to you in the New Year. Should you be considering home ownership in 2018, be sure to educate yourself on the soon-to-be regulation changes and become aware of how they will affect you.