First-time home buyers and homeowners alike, listen up. The Office of the Superintendent of Financial Institutions (OSFI) announced back in late 2017 that some changes would be taking place on January 1st, 2018. The changes have happened, so it’s important that we all understand what changed and the best way to move forward when purchasing a house or renewing a mortgage. Let’s take a look at the mortgage changes in Canada, how they affect us, and what we can do about it.
New Mortgage Rules and Stress Tests
Real estate in Canada is steadily and quickly changing. Motivations to make a change and apply new rules include increased and unsustainable debt of Canadian households, raised housing prices, and the risks that are potentially posed by these issues to the greater economy.
The new rules require that uninsured mortgages, or mortgages where the homebuyer has a down payment of 20% or more, must pass a stress test. This stress test is the same one that insured, or high-ratio mortgages must also pass.
What are the requirements for the stress test? Homebuyers must qualify for a mortgage loan that meets the Bank of Canada’s five-year benchmark rate, or the mortgage rate the lender offers plus 2% points.
These rules also apply to those who are refinancing their mortgage change lenders as well. This means that current homeowners who are paying their mortgage may be locked into their current lender if they don’t pass a stress test with a new lender.
How Does This Affect Me?
These new rules affect both homebuyers and homeowners who currently are paying a mortgage.
Essentially, first-time homebuyers will be able to afford 20% less house. Even with a larger down payment, they will still need to pass the new stress test. If the homebuyer fails to pass the stress test, they have several options.
They can wait it out for a few years until their income raises or are purchasing a home with a significant other or partner. The homebuyer can also seek the assistance of a co-signer to help them pass the stress test, or simply purchase a smaller, less expensive home or condominium.
Homeowners who are looking to find a new lender once their mortgage is up for renewal or refinance their mortgage will have to pass the stress test as well. If they do not pass the stress test, they may have to stay with their current lender, who could change their interest rates however they see fit.
Find Houses for Sale
Although these new rules may seem unfair to many, they do have the best of intentions. The implication of these rules could help build a stronger, healthier real estate market in Canada. Not only that, it can help first-time homebuyers ensure that they are making an investment that they can afford long-term.
To learn more about the real estate market in Canada or to browse helpful tips and tricks for homeowners and homebuyers, browse our blog! If you’re looking for houses for sale in Burlington, Waterdown, and Hamilton, contact our team of real estate agents today. The Woolcott Team can help you find your dream home, and at the best price possible.