New Year’s Countdown to Big Mortgage Stress Test
OSFI (Office of the Superintendent of Financial Institutions) just published it’s new mortgage rules Tuesday which will include a stress test for borrowers to make sure they can manage increased interest rates. These rules were released earlier this summer but the big news with this version is that a date has been added and will now be official as of January 1st.
Another rule is that previously, people borrowing with a down payment of less than 20% (only available to those borrowing less than $1,000,000) had to get insurance and do the stress test. Now uninsured borrowers will also be required to take the test.
The test is to make sure the borrower can continue to pay loans if (when) when rates rise. It’s not hard to find mortgage rates lower than the posted five year average rate (currently 4.89%) but that is what borrows will have to show they can manage. The new rules won’t apply to renewals (as long as you stay with your existing lender).
The worry is that this will further chill the market but OSFI feels that these changes are necessary to protect the banking system as rates rise. Estimates suggest uninsured markets represent 80% of the market so this will affect a lot of borrowers. A buyer of a $1,000,000 home will see their purchasing power reduced by 15%.
The new rules mean lenders will also be more vigilant about the loan to value ratio to ensure they are not loaning too much compared to the value of the home. This is all big news but people are not talking about implications as much as they perhaps should be. Call me if you want to chat! And let’s go find you that place this month so that you are in before January 1st!