Nooran Ostadeian

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Edmonton Real Estate
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 Andre Houle, Mortgage Group                                                                                                 10/1/2017

 

The Office of the Superintendent of Financial Institutions (OSFI) released revised guidelines for the mortgage industry, similar to the draft version released earlier this summer. These new parameters will take effect January 1, 2018. 

OSFI said they will be holding information sessions through the fall to discuss implementation expectations. These new guidelines include a stress test for uninsured mortgages or mortgages with more than a 20% down payment or 20% in existing equity.  This new stress test means that borrowers will be qualified at the greater of their contract rate + 2% or the five year benchmark rate published by the Bank of Canada, which is currently 4.89%.

To give you some numbers, per $100,000 in mortgages. Based on an interest rate of 3.29% with a 25yr amortization.
Mortgage Payment - $488.25 (3.29% with 25yr am)
Benchmark Rate Payment - $575.36 (4.89% with 25yr am)
Stress Test Payment - $598.22 (5.29% with a 25yr am)

Lenders determine how much money you can borrow by determining what percentage of your income can go towards your mortgage and debt payments. The new requirement will determine the mortgage payment based on the higher of the benchmark rate or stress test rate, even though your contract rate is 3.29%. This will reduce your maximum allowable mortgage by approximately 20%.

These are not the only changes made today, below is a summary of all the changes:

  • A new minimum qualifying rate (stress test) for uninsured mortgages
  • Lenders will be required to enhance their Loan to Value (LTV) measurement and limits to ensure risk responsiveness
  • Restrictions will be placed on certain lending arrangements that are designed or appear designed to circumvent LTV limits.

 The guidelines go into effect January 1, 2018. We are watching them closely.

Summary of OSFI’s Mortgage Underwriting Guidelines B-20 revisions:

Introduction of a Minimum Qualifying Rate (Stress Test) for Uninsured Mortgages

The new minimum qualifying rate for uninsured mortgages will be the greater of the five-year benchmark rate published by the Bank of Canada, which is 4.89% or the contractual rate plus 200 basis points. 

Lenders will be required to enhance their LTV measurement and limits

Lenders must establish and adhere to appropriate LTV ratio limits that are reflective of risk and must continually update as housing markets and the economic environment evolve.

Restrictions will be placed on certain lending arrangements that are designed or appear designed to circumvent LTV Limits (ie Co-Lending)

Federally-regulated financial institutions are 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 – so limits in mortgage bundling.

It is important to note that these changes to B-20 are not technically required by Credit Unions. That said, in the past, adherence to B-20 has occurred by some CUs for all or some of the guidelines. Given the funding capacity of Credit Unions, there may be some changes to their policies as well.

 

Please feel free to reach out to me if you have any questions.

 

Edmonton Real Estate, Houses for Sale in Edfmonton, YEG - Nooran Ostadeian Realtor with RE/MAX Elite 

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Data is deemed reliable but is not guaranteed accurate by the REALTORS® Association of Edmonton.