Recent Mortgage Rule ChangesSynergy Mortgage
[Synergy Mortgage Inc. / Invis – April 21, 2021]
There had been speculation that the government would act to cool the hot housing market, but the industry saw only modest measures in the April 19 federal budget. A national annual tax on foreign-owned properties that are left vacant or under-occupied was announced, which will take effect in 2022. This will only apply to “non-residents” to discourage offshore buyers.
New stress test
The budget also referenced the recent announcement by the Office of the Superintendent of Financial Institutions (OSFI), which is proposing a new stress test rate for uninsured mortgages of 5.25% effective June 1. This is higher than the current 4.79% and, going forward, will no longer be based on bank posted rates. It will be set a minimum of once per year by OSFI.
What is the stress test?
When getting a new mortgage, lenders must ensure that you pass a stress test, which means that you can handle payments at a certain qualifying rate. This is not the same rate as your actual contract rate, it’s for mortgage qualifying only.
Why June 1 matters
Uninsured mortgages (i.e. when you have more than 20% equity) approved before June 1 are not subject to this tougher stress test so qualifying will be slightly easier. This applies to purchases that close after June 1 with a signed purchase and sale agreement. As a result, if you are thinking refinance to get a lower rate or for debt consolidation, or a purchase with more than 20% down, it’s a good idea to get in touch so we can discuss your situation.
What about high-ratio mortgages (i.e. less than 20% down)?
This stress test has not changed but it is certainly possible that it may also become slightly tougher at some point. If you are looking to purchase, get a pre-approval so you are house shopping within your budget and have rate protection. It’s important to purchase when you are financially ready and not be driven by market conditions.
I am here to help so if you have questions on any matter, please let me know.