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<\/h4>\n<\/h4>\nToday, the Office of the Superintendent of Financial Institutions (OSFI) introduced new rules on mortgage lending to take effect next year.<\/p>\n
OSFI is setting a new minimum qualifying rate, or \u201cstress test,\u201d for uninsured mortgages (mortgage consumers with down payments 20% or greater than their home price).<\/p>\n
The rules now require the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada (presently 4.89%) or 200 basis points above the mortgage holder\u2019s contractual mortgage rate. \u201cThe main effect will be felt by first-time buyers,\u201d says James Laird, co-founder of\u00a0Ratehub.ca<\/a>. \u201cNo matter how much money they put down as a down payment, they will have to pass the stress test.\u201d The effect of the changes will be huge, resulting in a 20% decrease in affordability, meaning a first-time homebuyer will be able to buy 20% less house, explains Laird.<\/p>\n MoneySense<\/em>\u00a0asked Ratehub.ca to run the numbers on two likely scenarios and find out what it would mean for a family\u2019s bottom line. Here\u2019s what they found:<\/p>\n In this case, the family\u2019s mortgage rate, plus 200 basis points, is less than the Bank of Canada five-year benchmark of 4.89%.<\/p>\n According to Ratehub.ca\u2019s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 2.83% amortized over 25 years can currently afford a home worth $726,939.<\/p>\n Under new rules, they need to qualify at 4.89%<\/strong> In this case, the family\u2019s mortgage rate, plus 200 basis points, is greater than the Bank of Canada five-year benchmark of 4.89%.<\/p>\n According to Ratehub.ca\u2019s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 3.09% amortized over 25 years can currently afford a home worth $706,692.<\/p>\n Under new rules, they need to qualify at 5.09%<\/strong> If a first-time homebuyer doesn\u2019t pass the new stress test, they have three options, says Laird. \u201cThey can either put down more money on their down payment to pass the stress test, they can decide not to purchase the home, or they can add a co-signer onto the loan that has income as well,\u201d says Laird. The stress test will be done at the time of refinancing as well, with one exception. \u201cIf on renewal you stay with your existing lender, then you don\u2019t have to pass the stress test again,\u201d says Laird. \u201cHowever, if you change lenders at mortgage renewal time, you may have to pass the stress test but it\u2019s not crystal clear now if this will be the case for those switching mortgage lenders.\u201d<\/p>\n So if you\u2019re a first-time homebuyer, it may mean renting a little longer and waiting for your income to go up before you\u2019re able to buy your first home. Alternatively, some first-time buyers will buy less\u2014maybe a condo instead of a pricier detached home. Or, the new buyers may opt to get a co-signer to qualify under the new rules.<\/p>\n But whatever you do, if you\u2019re a first-time buyer, make sure you understand what you qualify for using the new regulatory rules, and get a pre-approved mortgage before you start house-hunting. \u201cThis shouldn\u2019t be something that shocks you partway through the home-buying process,\u201d says Laird.<\/p>\n And finally, do your own research and run the numbers on your own family\u2019s income numbers. You can use Ratehub.ca\u2019s free\u00a0online mortgage affordability calculator<\/a>\u00a0to calculate the impact of the mortgage stress test on your home affordability.<\/p>\nSCENARIO 1: Bank of Canada five-year benchmark qualifying rate<\/strong><\/h3>\n
\nThey can now afford $570,970<\/strong>
\nA difference of $155,969 (less 21.45%)<\/strong><\/p>\nSCENARIO 2: 200 basis points above contractual rate<\/strong><\/h3>\n
\nThey can now afford $559,896<\/strong>
\nA difference of $146,796 (less 20.77%)<\/strong><\/p>\n