Why buy a home before January 2018 – simply because the new stress test or the OSFI minimum qualifying rate will become a mandatory requirement for all home buyers who want to buy a property. This includes both resale and pre-construction homes or condos. According to the mortgage rules announced in 2016, this stress test was applicable to anyone who put in less than 20% down payment, and they had to purchase mortgage insurance.
As per a recent news release from the Office of the Superintendent of Financial Institutions Canada, OSFI is:
Setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages (anyone who puts in more than 20% down payment)
The minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
Requiring lenders to enhance their loan-to-value (LTV) measurement and limits so they will be dynamic and responsive to risk.
Federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve.
Placing restrictions on certain lending arrangements that are designed, or appear designed to circumvent LTV limits.
A federally regulated financial institution is prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.
New qualifying guidelines are to use the greater of the Mortgage Qualifying rate or the contractual mortgage rate + 2%.
You are not going to be paying a higher mortgage rate. You only have to qualify at the higher rate (stress test).
New rule applies to all clients and all mortgages, except if you have a firm approval in place as of December 31st.
This new rule will decrease the amount you can borrow for either a new purchase or a refinance of your existing home/rental property.
Why Buy a Home Before January 2018 – Purchasing Power could drop by 15-20%
Starting in the new year, new home or condo buyers who fall under the uninsured and insured borrower categories will undergo the same assessment. The idea is to ensure that all new mortgage applicants irrespective of their down payment amount will be able to pay off their loans even if the interest rates were to go higher than what they are at today. Borrowers will be tested at either greater than the five-year benchmark rate, or 2% higher than their actual mortgage rate, whichever is higher.
The chart illustrates your current & new purchasing power
After the drastic adjustment in Mississauga home prices earlier this year, many home buyers simply moved out of the home buying mood and have been expecting a further price reduction. They didn’t expect a fall in their own purchasing power.
Market has suddenly opened up and home buyers are literally trying to get a bigger bang for their buck before Jan 1, 2018.
In addition to regular home buyers, our advice to renters and first time home buyers is to act quickly and get started with their home or condo buying process by securing your mortgage approval before Jan 1, 2018.
What if you qualify for more but want to buy a smaller house ?
In this case the new rules should make no difference. It might even make sense to wait and watch what prices will be like in 2018. With less number of buyers competing for expensive homes (less demand), you can expect less competition and lower prices.
Contact Team Amit Kalia to Buy Your Mississauga Home or Condo Before January 2018
Amit is a full time local REALTOR® with RE/MAX Real Estate Brokerage Inc. in Mississauga. RE/MAX is Canada's #1 real estate company. Team Kalia serves property sellers, first time buyers, investors, landlords, new immigrants and non-residents in Mississauga including Square One City Centre area. Team Kalia offers a 30 Days Sold Guarantee to Sellers. They also provide tenant finding services to their investor clients.