New Mortgage Lending Guidelines as of Jan. 1st, 2018

Recently, the Feds (OSFI) announced a new set of lending guidelines for all regulated banks and lenders beginning January 1st, 2018.

The worst change for some is the 'stress test' for all borrowers. In October 2016, we saw a similar rule for borrowers with less than 20% down to qualify under a 'stress test'. Now, those with more than 20% down will have to face similar qualifying guidelines as well. These borrowers need to first qualify at the greater of the 5 year benchmark rate (currently 4.99%) or their actual rate + 2.00%. There's only a little bit of time left for borrowers with 20% down or more to qualify at their actual contract rate.
The Pros
  • With interest rates on the rise, this actually makes sense as it will help add a level of prevention from borrowers from getting in over their heads.
  • It should also be a somewhat effective measure to help slow the Toronto and Vancouver markets.

The Cons

  • All borrowers will qualify for about 21% less.
  • This will create a further slowing effect on our local real estate market.
  • This will reduce current mortgage holders ability to shop around for better rates when their mortgage comes due for renewal.
  • There's concern that this will increase the number of borrowers who to turn to unregulated lenders which may increase the number of mortgage defaults down the road. Not all of these types of lenders look out for the best interests of the consumers. 

My last thoughts... Will these new rules be permanent? The point of the test is to prepare someone for the future (good) but, a 2% increase over 5 years seems very unlikely. Even if that happened, 5 years is a long time for incomes and home values to rise. I predict we could see a retraction to the stress test but, I don't see that happening any time soon.
Ian Leverington
Mortgage Professional
Verico Crown Mortgage Services

Find more info at www.ianleverington.ca

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