What Is The Mortgage Stress Test All About And How Does It Impact You

What Is The Mortgage Stress Test All About And How Does It Impact You

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If you have been watching the news this past week I am sure you have seen the headlines regarding the new stress test introduced by the Office of the Superintendent of Financial Institutions (OSFI). OSFI is an independent agency of the Government of Canada, established in 1987 to contribute to the safety and soundness of the Canadian financial system. OSFI supervises and regulates federally registered banks and insurers, trust and loan companies, as well as private pension plans subject to federal oversight.

OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages (Buyers with more than 20% deposit).

  • Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.( My note.. this means you must qualify at the best 5yr rate plus 2% or 4.9% today)

OSFI is requiring lenders to enhance their loan-to-value (LTV) measurement and limits so they will be dynamic and responsive to risk.

  • Under the final Guideline, federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve.

OSFI is placing restrictions on certain lending arrangements that are designed or appear designed to circumvent LTV limits. (For example 2nd mortgages)

  • A federally regulated financial institution is prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.

Here are some real examples:

  1. First-time buyer is currently qualified for a $400,000 mortgage.  On January 1st, will qualify for $320,000.

  2. Move up buyer currently qualified for $750,000 mortgage, will be reduced to $600,000. 

  3. Luxury Buyer qualified at $1,500,000 in mortgage, now qualified for $1,200,000.

Last year there was a similar change that was introduced for buyers that required an insured mortgage (less than 20%). I have been working with several Buyers that were impacted by this change. What this meant to them was buying a different type of house in a different neighborhood.

These changes will come into effect on January 1, 2018.What's next? If you are planning to purchase real estate lets connect to discuss how this might impact you. 


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Phone: 416-662-3283
Dated: October 23rd 2017
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