The OFSI (the governing body in Canada for financial services) has just announced a MAJOR new change to mortgage qualification rules, which will become effective January 1 2018! The main change is a 2% increase in the “qualifying stress test” for all uninsured mortgages. The result is that buyers’ purchasing power will drop significantly.
What does this mean for YOU as a BUYER?
It means you will be required to qualify for your mortgage based on a rate 2% higher than the actual mortgage rate you would be obtaining from your lender.
So, if the actual mortgage rate you have obtained today for a mortgage were 2.99%, then after January 1 2018, if you were to restart the mortgage qualification process, you would have to qualify for that same mortgage based on a rate of 4.99% (2.99% + 2% for qualifying rule = 4.99%). If approved, you still would make payments based on the 2.99% but you would not be able to get the mortgage unless your financial position allowed you to make payments based on 4.99%.
This higher qualifying rate would reduce the amount of mortgage you could afford and therefore reduce the purchase price of homes you would qualify to purchase!
On average this would reduce your buying power by approximately 14%, depending on the value of the home you are purchasing.
Here is an example of the reduced buying power:
- The buyers plan to buy a new home
- The buyers have a down payment of $180,000 (they plan to put at least 20% down)
If the Buyers purchase BEFORE January 1 2018
- 2.99%, 30-year amortization
- Max Purchase Price = $900,000
- Down payment = $180K
- Max mortgage = $720K
In the Buyers purchase AFTER January 1 2018
- The buyers would have to qualify at 4.99% (30 year amortization)
- They would still get a mortgage rate of 2.99% (30-year amortization)
- MAX PURCHASE PRICE NOW FALLS TO $800,000
- Down payment $180,000
- Max mortgage amount reduced to $620,000
In this scenario, the buyers lose 11% in buying power.
What will happen to the market?
Its quite likely that buyers who have recently been considering a purchase will be motivated to move forward quickly, to lock in a mortgage before the new rules come into effect in January 2018, which should result in an immediate boost in buyer demand. Sellers should also recognize that they have a short window to attract 2017 buyers. In January, we’ll likely see a drop in buyer demand, as buyers adjust to the realities of their lowered buying power.
We can help
More than ever, its critical that buyers enlist a mortgage professional to assist in the finances for buying a home. We can refer you to an expert to help with your lending needs. We can also keep you on top of the shifting market. Call us to get started.
Royal LePage, BurlOak, Burlington, ON
Source for this blog post: Tribe Financial | Sep 12, 2017