All about the Mortgage Changes
Posted on Oct 22, 2017 in Mortgage Market Updates and News
If you’ve been following the real estate and mortgage news, you’re likely already aware that there are some significant mortgage changes coming in the new year. This post gives a breakdown of those changes and an idea of how they may effect you.
Last October, the Office of the Superintendent of Financial Institutions (OSFI - the rule-maker of lending guidelines) announced and implemented probably the most drastic set of mortgage regulations changes we’ve ever seen. Those guidelines were announced October 3rd and took effect October 17th, 2016. This was a very challenging time in the mortgage world, having such a short time for people effected to handle the impact. Those changes saw the implementation of a ‘qualifying rate stress test’. This meant that for the first time, borrowers needed to qualify for their mortgages at a higher rate (ie higher payment) than they were going to pay. Resulting in them qualifying for a smaller mortgage than they previously did, on their same income. It was a big shock, to first time home buyers especially who often max out what they can qualify for in order to be able to get into the market. In the long run, I think it was a positive change for the safety and security of our real estate industry. At the end of the day, it was about making sure people could truly afford their mortgages.
Last year’s changes were aimed at what the government considers our higher risk borrowers; people with small down payments. This year’s mortgage changes however, are aimed at everybody else. They’re aimed at people who have large down payments or equity in their homes they may want to access. This is where you should pay attention…
If you’re thinking of purchasing a home or refinancing your current mortgage to pull some equity, these changes will reduce the amount you’re able to borrow based on your income by about 20%. This is a major change.
This means if you had a family income of $80,000/year and could previously qualify for a mortgage of roughly $500,000, after this change you’ll only qualify for about $400,000. *Note these are rough qualification numbers.
It’s a major change, and has a huge impact on people’s borrowing power, but there’s always good news. In this case, the good news is that OSFI listened to concerns with how they implemented last year’s mortgage changes so quickly and this time around they’ve given a more reasonable timeline. If you’re thinking of making changes or purchasing, you’ve still got time to do that as the changes don’t take effect until January 1, 2018. The sooner the better to get started though as lenders may be overwhelmingly busy as an influx of borrowers try to complete their mortgages prior to the deadline.
Call or email me today if you’d like to discuss how these changes will impact you.