Changes to Residential Mortgage Rules
The Office of the Superintendent of Financial Institutions Canada (OSFI) announced in October 2017 that changes were coming for residential mortgages and the underwriting criteria used by lenders effective January 1, 2018.
The largest change is in qualifying for new purchases and refinances using the new qualification criteria for uninsured mortgages. An Uninsured Mortgage known as a conventional mortgage is where the down payment is at least 20% of the property value.
Federally regulated mortgage lenders must now apply a debt-servicing stress test to qualify home buyers /owners using the greater of either:
- The contractual mortgage rate plus and additional 2% or
- The Bank of Canada five-year benchmark rate
A mortgage stress test evaluates the borrower’s ability to make principal and interest payments on their mortgage. The stress test rules won’t apply to mortgage renewals – provided the renewal is with the borrower’s existing lender and is not an increase, product to product switch or new purchase.
Changes also made to Non-conforming mortgage applications with a restriction to a maximum of 65% Loan-To- Value (LTV). LTV refers to the size of a mortgage compared to the value of the property securing the loan. “Non-conforming” is defined as: property attributes with elevated credit risk.
The new LTV ratio requirements apply to: purchases, refinances, pre-approvals, increases, switches and roll ins.