Source: Rakhee Dhingra from Mortgage Saavy
Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), is setting a new minimum qualifying rate for uninsured mortgages that will come into effect on Jan. 1, 2018.
Preparing your clients for the new “stress test”
The expanding "stress tests" for mortgage borrowers will reduce how much house Canadians can afford by 21 percent.
A household with an annual income of $100,000 with a 20% downpayment and a 5-year fixed-rate 25-year mortgage at 2.89% can afford a house up to a purchase price of $726,145 based on current qualification standards.
Under the new ‘Stress Test” Clients affordability will change dramatically. Under the new rules, they need to qualify at 4.89%.
The same household with an annual income of $100,000 would be able to qualify now for only $573,791, a reduction of more than $150,000.
Scenario #2: 2% above the contractual rate
A household with an annual income of $100,000 with a 20% downpayment and a 5-year five-year rate 25-year mortgage at 3.09% can afford a house up to a purchase price of $706,692.
Under the new rules, they need to qualify at 5.09%. Now they can only afford a home worth $559,896—a difference of $146,796.
For those who currently have mortgage pre-approvals, it is important to note that a purchase must be secured and closed prior to the “Expiration date” of the pre-approval certificate to qualify under current guidelines.
Want to know how this will affect you? Do not hesitate to connect with us and we will be happy to answer all your questions.
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