Canada’s banking watchdog reveals the new rules for mortgage lending revealing the nal modi cations to tits mortgage underwriting standards – Guideline B-20 – that will come into effect January 1st, 2018. Rules that will most certainly further tighten lending standards and will affect both borrowers and lenders. Here is what you need to know.
Mortgage consumers that are non-insured or conventional (buyers with MORE THAN 20% down payment) will have to qualify using a Qualifying Rate or Stress Test. This minimum rate is the greater of Bank of Canada Benchmark rate (currently 2.89%) or the contract rate + 2%.
The biggest impact will be in how much the consumer can qualify for. Previously the client was quali ed using the actual rare of the mortgage. Qualifying on the higher stress test will decrease the amount of mortgage one would qualify for. This applies to all terms, xed and variable rate mortgages.
Under the nal Guideline, federally regulated nancial institutions must establish and adhere to appropriate LTV ratio limits that are re ective of risk and are updated as housing markets and the economic environment evolve. WHAT DOES THIS MEAN? OFSI directs lenders to have internal risk management protocols in higher priced or hot markets. This is a continuation of a policy already in place. Many lenders have already implemented reduced lending in identi ed areas.
A federally regulated nancial institution is prohibited from arranging with another lender a mortgage, or a combi- nation of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio. WHAT DOES THIS MEAN? The max uninsured mortgage is 80% LTV. Lenders can not arrange another product or mortgage to avoid having to insure the mortgage that otherwise would not have quali ed under the guidelines.
YES! Homebuyers will still have the ability to re nance up to 80% of the value of their home. You will have to pass the same stress test and qualify at the higher of the Bank of Canada Benchmark Rate or Contract Rate + 2%.