After years of lobbying the government for more reasonable and relaxed stress testing for mortgages the real estate and mortgage industry has succeeded to affect some change.
Announced on February 18th 2020 the Ministry of Finance has outlined their plan to relax mortgage qualification rules helping Canadians qualify for a little more mortgage.
The changes only impact insured and insurable mortgages
It’s very important to keep in mind here that the changes are only affecting mortgages that are deemed to be insured or insurable. Some of the critical factors to determine if a mortgage is qualified as insured/insurable include:
- Purchase price is less than $1,000,000.
- Down payment is less than 20% for an insured mortgage meaning that mortgage default insurance is required from CMHC, Genworth or Canada Guaranty.
- If there is more than 20% down payment then the mortgage must be amortized over 25 years. (No 30 year amortizations permitted)
- No refinances permitted.
Mortgage rules governing all the excluded mortgage types i.e purchases over $1M or refinances are set by the Office of the Superintendent of Financial Institutions (OSFI). Who at the time of writing have already expressed interest in following the Ministry of Finances cue to relax mortgage qualification rules.
6 things to know about the mortgage stress-test changes:
- The new rules will impact insured & insurable mortgages. Uninsurable mortgage rules are governed by the Office of the Superintendent Financial Institutions they haven’t announced any changes as of yet. (Not sure what the difference between an insured, insurable or uninsurable mortgage is click here.)
- Borrowers will qualify based on the average weekly insured 5 year fixed rate + 2%. Not sure what the average weekly insured 5 year fixed rate is? Neither are we. It’s a new terminology introduced in the government’s press release. Based on a quick look of current rates I would guess the current average is about 2.69% to 2.79%. So the new qualify rate based on today’s rates could be as low as 4.69%.
- The current qualifying rate is determined by the average of the posted 5 year fixed rate which is 5.19% today.
- The lower qualifying rate means that a borrower will qualify for ~8%-10% mortgage mortgage money.
- Broker Pro-Tip: Assuming no significant consumer debt today borrowers qualify for roughly ~4.65 x household income. In April that number goes up to ~ 5 x household income.
- New rules will come into effect on April 6th 2020.
The full Ministry of Finance press release can be read here.
As always I’m here for you if you have any questions about these exciting new changes.
Overall I see the changes as a positive step in the right direction to help home buyers compete in a challenging market however I doubt it will have any real or significant impact on the housing stresses felt by many households in the GTA.
Stay tuned for more.