Tuesday, January 9, 2018
2018 OSFI's New Stress-Test Rules broken down
The most wide-reaching change announced by the Office of the Superintendent of Financial Institutions (OSFI) is the establishment of a new minimum qualifying rate, or “stress test,” for borrowers making a down payment of more than 20% of the home’s value.
Previously, stress test requirements only applied to insured mortgages (those with down payments of less than 20%) and most variable mortgages and terms less than five years.
The stress test requirement, which came into effect on January 1, 2018, is buyers with uninsured mortgages (mortgages with greater than 20% down) will need to prove that they can afford payments based on the greater of the Bank of Canada’s five-year benchmark rate (currently 4.99%) or their contract mortgage rate plus two percentage points. Average today is 3.29% plus 2% = 5.29%
Note: Conventional purchases ( greater than 20% down) can still be done using the benchmark rate set November 2016, you just need to ensure you contact me to figure out how!
Below are some ways examples to see how we can overcome the new stress test in place!
Purchase of a new home - With 20% down the banks will require you to qualify at contract plus 2%,, this could reduce your purchasing power, however, I can also amortize a mortgage over 30 years instead of 25 years to offset the debt to income ratios and most likely get the approval.
as a broker I have access to mono-line lenders - this is lenders who have just as much clout as the banks, but they don't have the overhead costs of a bank. They are 100% online and specialize wholly on mortgages, not to mention, fantastic to deal with! If you have 20% down and meet all the insurer guidelines we can call your mortgage insurable and qualify you at benchmark which today is 4.99%, increasing your purchasing power, only through a mortgage broker.
You can take 15% of your 20% down payment and put it down to get a high ratio or insured mortgage at lower rates ( with my mono line lenders). This means you only have to qualify at benchmark! Then, once the mortgage funds or you move in, you take advantage of your pre-payment options and put the other 5% down direct on the principal of your mortgage loan. Over the term of 5 years, the money you have saved in interest pays for the small insurer premium you paid to get the home in the first place. Mono-line lenders offer lower rates on insured mortgages as they don't carry the same risk as the loan is insured against default from the customer.
If it is a refinance, this is where you wish to take equity from your home to pay off debt, invest, go on a trip, or do whatever you wish as it your equity, I have options here too! I can extend the amortization from 25 years to 30 years or consider lenders who don't need to follow the new government rules. Private lenders can be an excellent option and are being utilized more and more to get equity out of homes or to make purchases.
Bottom Line: Don't listen to the all the negativity that comes with any change. Change is inevitable and with the right mortgage broker reviewing your mortgage, you have options!
Contact Amy Wilson, amy@yourmortgagegirl,ca or visit my website at www.yourmortgagegirl.ca