At the beginning of this year new tighter mortgage rules were put out by The Office of the Superintendent of Financial Institutions (OSFI). This has made it more difficult for some home buyers to get mortgages this year.
The new rules have stricter qualifying criteria as the requirement for a mortgage stress test is now extended to all homebuyers. Even borrowers with a down payment of twenty per cent or more now face a stress test, as has been the case since January 2017 for applicants with smaller down payments who require mortgage insurance. This is aimed at limiting the amount of debt that Canadians and financial institutions take on.
So what is the stress test? It means that financial institutions would use either the five-year benchmark rate published by the Bank of Canada or the customer's mortgage interest rate plus 2 per cent - whichever is higher. This is to ensure that borrowers’ housing expenses compared to their income remain below a certain threshold even if rates rise. Financial institutions look at the size of the loan compared to the price of the house as well as credit scores.
For some first-time home buyers these stricter mortgage lending rules mean you might need to rent for longer before you can buy a home. Or you might need to consider getting a co-signer to qualify under these stricter rules. This may cause others to have to settle for a less expensive home than they would have qualified for in the past, and some people may choose to wait and save up for a larger down payment.