OSFI RULE B-20

​If you're wondering whether you will qualify for a mortgage, this is the deal. (It's October, so you may have a chance to qualify under the older rules). 

Although uninsured borrowers are low-risk, the new stress test will affect them.

OSFI released their mortgage guidelines (Rule B-20)  last week. These guidelines are set to become law in January. The majority of purchasers borrowing will see their mortgage applications declined in 2018. The biggest group that will be affected are the self-employed.

What we can expect: 

A LOT LESS BUYING POWER

Having to qualify at a higher rate will reduce buying power. Borrowers won't qualify for the mortgage size they want.

Fixed rates will have to get qualified by using 6% or higher. In today's market, this is unheard of. It's nearly impossible to qualify at this percentage.

REDUCED HOME PRICES

With fewer borrowers able to qualify,  less homes will be sold. Prices will also come down as a result of overall affordability. 

INCREASED RISK FOR BORROWERS

You will see from my example that it's easier to get a shorter-term loan that carries  a higher risk than it is a longer term loan like a five-year fixed. If someone is borrowing at their maximum affordability or 5x their income, shorter terms and variable rates pose a greater financial risk due to volatility in the market. 


Sress-tested uninsured mortgages examples

To qualify for a mortgage, you must qualify at either 4.99% or the contract rate + 2%, whichever is greater. 

Scenario 1

For example, if you wanted a two-year term and the rate is 2.74%, I would add 2%. Now, I am qualifying you at 4.74%. This qualifying rate is less than 4.99% so I must use 4.99%. 

Scenario 2

Alternatively, you may want a five year term. I would take the rate of 3.04% for example, and and 2% (5.04%). Because this is greater than 4.99%, I must use 5.04%. 

You have noticed that it's easier to qualify for a shorter term mortgage. Yes, this is true. In reality, it's harder to qualify. Period. 

The new rules target all uninsured borrowers. Insured borrowers will continue to be tested also (those with less than 20% downpayment) So,  Whether you have a downpayment of 5% or 30%, stress-testing rules will apply to you. 

Reducing mortgage amount or LTV (Loan to Value) 

As property prices haven't decreased a whole lot, the rules allow banks to scale back on loan amount. If you purchase a property in an area that experienced a sharp decline, the bank can reduce your mortgage amount.

What can you do?

First, you can find out what you will qualify for. My pre-approvals are an analysis of your financial picture. Getting a pre-approval helps you to understand what you can qualify for. It helps you to determine your maximum purchase price.

In today's market, a pre-approval will save you time and effort. It will help you understand your financial situation better. It will give you confidence in your buying decisions. 

If you don't have time, we can discuss your pre-approval over the phone. My pre-approvals are different than a pre-qualifying letter. They look at everything, even your credit score.

Let me help you qualify. Contact me today.