Owning a home is likely the most significant investment you will ever make in your life. Along with the investment, comes risk. Without a professional opinion, you may feel overwhelmed by the amount of probability involved in the process.
The thought of not qualifying for a potential mortgage is a fear that many individuals carry on their back when house-hunting. If you are looking to buy a home soon, you may not have much time before the new mortgage rules affect your purchasing power.
Here is everything you need to know about the new stress test:
What are the new rules?
One of the major new rules requires all uninsured borrowers to take the stress test. If you are a homebuyer and don’t need mortgage insurance, you will still have to prove that you can meet the financial commitment if interest rates go beyond the five-year benchmark rate. This rule includes those individuals that have a 20% down payment or higher.
More specifically, according to Canadian Mortgage Trends:
“Buyers with uninsured mortgages will need to prove that they can afford payments based on the greater of the Bank of Canada’s five-year benchmark rate (currently 4.89%) or their contract mortgage rate plus two percentage points.”
When does the new Ontario Mortgage Stress Test kick in?
Ontario’s banking regulator’s new stress test will officially come into place on Jan. 1, 2018. The timing of the new test may cause some confusion for those that are currently in the process of applying for a mortgage. We’ve outlined who the stress test will affect and what steps you can take to move forward:
Who is affected?
Are you wondering how this new implementation will affect your interest in a mortgage? Here are a few scenarios that could involve your current mortgage application:
- Approved mortgage applications: Luckily, if you’ve already received approval for a mortgage, you will be unaffected by the new rules.
- Preapproved mortgages: If your preapproval is issued under the old rules between October 17 and December 31, 2017, your bank should be able to honour it. However, the lender can still make the final decision of which guidelines apply. The OSFI suggests that you reconfirm all conditions of your preapproval with the lender.
- New Year applications: According to the OSFI, all loan applications or pre-approvals that occur after January 1, 2018, will be subject to the new stress test rules. Unfortunately, if you signed your purchase agreement before the announcement of the new regulations, it is not a viable exception.
The new stress test is an attempt to change the dynamic of our housing market by ensuring stability. Ironically, this may make becoming a homeowner a stricter process for new immigrants and young professionals. On the other hand, new homebuyers that successfully qualify will benefit from this if a slower housing market arises. Here are some possible scenarios that you may be curious about:
Potential outcomes
According to the Toronto Star, there are a few ways that this could go. They suggest that you likely will see the following:
- An increased demand for homes throughout November and December 2017 due to individuals with preapproved mortgages rushing to close.
- An increase in activity throughout the “cheaper homes” category and less activity around expensive homes. With the new rules coming into effect, homebuyers will qualify for fewer mortgage loans.
- A slower growth in the rate of house prices per year (specifically in areas like Vancouver and Toronto).
- Credit unions and other lenders that are not federally regulated may increase patronage.
How CCF can help
Regardless of how much your bank is willing to lend to you, it is critical to ensure that you only purchase a home you can afford. While buying a home is a life-changing decision, we’re here to guide you through the process of receiving the mortgage approval necessary for doing it!
At CCF Mortgage, we guarantee well-informed and effective representation. We strive to assist our clients throughout the process of securing a mortgage by helping them find the best-suited option for their needs. To learn more about how we can help you receive the mortgage approval you deserve, visit our website or contact us today!