The Office of the Superintendent of Financial Institutions (OSFI) published the final version of Guideline B-20 − Residential Mortgage Underwriting Practices and Procedures, which comes into effect on January 1, 2018.
Now, even if you have 20% or larger down payment, you must qualify at the greater of either the Bank of Canada benchmark rate, or the contractual rate + 2%. This was previously only the case for insured borrowers with less than 20% down payment to undergo a stress test to protect against future rate increases.
It is important to point out that existing borrowers who remain with their current lender at renewal, the stress test will not apply. However, should you want to shop around for better terms, rates, features, or product, the stress test kicks in and could become a detractor or a disqualifier for many!
Another change coming is that “OSFI is requiring lenders to enhance their loan-to-value (LTV) measurement and limits so they will be dynamic and responsive to risk.”
This means that more scrutiny and internal processes with lenders will also be applied to ensure they are not giving out mortgages too large in comparison to the value of the home. No clear direction from the lenders yet on that point, but suffice to say that TDS and GDS at the top ends will be scrutinized or drastically limited to higher beacon (credit) score borrowers.
We should expect to see extended amortizations come back into play (remember 30, 35, and even 40-year mortgages?). The 40-year is not likely to return, but to maintain affordability, 30 and 35-year amortizations can be a feasible option, but likely to come with a rate premium.
To see how the rules may affect you, contact me!