New Mortgage Rules
The Office of the Superintendent of Financial Institutions (OFSI) has introduced new rules on mortgage lending will take effect next year.
The OFSI is set to introduce a new qualifying rate or “stress test” for uninsured mortgages. These new rules will come into effect January 1, 2018. These are mortgage consumers that have given a down payment of 20% or more on their home price. This new rule is to help ensure that the borrower would be able to pay the loan back if the interest rates were to increase.
This new mortgage rule is to help ensure that borrowers can withstand higher interest rates. Previously only insured borrowers had to go through a stress test. By law borrowers paying less than 20% on a down payment of a house must pay for mortgage insurance.
This stress test is designed to simulate a borrower’s financial situation by assuming they would have to pay back the loan at the posted average - not the deal they were able to negotiate. Under the new rules borrowers would have to be tested at the five-year average posted rate or 2% higher than their actual mortgage rate - whichever one is higher.
The new rules will not affect the borrower renewing their current mortgage, if it is with the same lender.
In addition to the stress test, these new rules would require lenders to have more scrutiny around the loan-to-value ratio of the loans they give out. This is to ensure that they are not giving out mortgages that are too large compared to the underlying value of the home.
There are also new limitations on so-called lending or bundled mortgages that aim to ensure lenders don't flout rules designed to limit how much they can lend.