What you Need to Know About the Latest Mortgage Rule Changes

Matt Chan • Oct 17, 2017

If you’ve tuned into the news today, you’ve probably heard that there are new mortgage rules coming into effect on January 1st. 2018. Over the next week you’ll most likely hear a lot of commentary on whether these rules are good, bad, necessary, or unnecessary. And no doubt someone somewhere will come to the conclusion that no one will ever get a mortgage again, and that the housing market in Canada is going to come crashing down around us. Please remember that it’s the media’s job to write headlines and attract eyes, so they tend to sensationalize everything. Take what you hear with a grain of salt. Mortgages will still be written, and houses will still be bought.

At the end of the day, these new rules (outlined below) will come into play, and there’s nothing we can do to change the government’s mind. So how do we respond? Well… as it becomes increasingly difficult to qualify for a mortgage, your goal should be to work with a mortgage professional that gives you more choices. Instead of working with a single institution; having access to a single line of mortgage products, when you work with a mortgage broker, you have access to many different lenders, with a wide variety of choices.

As mortgage rules tighten, your goal should be to find as much flexibility as possible, you do this by working with a mortgage broker. So if you have any questions about your mortgage, please don’t hesitate to contact us anytime, we’d love to have a conversation with you.

Okay, so on to the changes… the biggest change to the rules surrounding mortgage qualification is that a requirement to stress test each mortgage will be now applied to all borrowers, instead of just borrowers who have less than a 20% downpayment. Qualification for all mortgages will now be made at a minimum qualifying rate which is the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.

OSFI (The Office of the Superintendent of Financial Institutions) released their final version of their new guidelines for the mortgage industry. Below is the news release from OSFI. called: OSFI is reinforcing a strong and prudent regulatory regime for residential mortgage underwriting

News Release

For Immediate Release

OTTAWA – October 17, 2017 – Office of the Superintendent of Financial Institutions Canada

Today the Office of the Superintendent of Financial Institutions Canada (OSFI) published the final version of Guideline B-20 − Residential Mortgage Underwriting Practices and Procedures. The revised Guideline, which comes into effect on January 1, 2018, applies to all federally regulated financial institutions.

The changes to Guideline B-20 reinforce OSFI’s expectation that federally regulated mortgage lenders remain vigilant in their mortgage underwriting practices. The final Guideline focuses on the minimum qualifying rate for uninsured mortgages, expectations around loan-to-value (LTV) frameworks and limits, and restrictions to transactions designed to circumvent those LTV limits.

OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages.

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%.

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.

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.

Quote

“These revisions to Guideline B-20 reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada,” said Superintendent Jeremy Rudin.

Quick Facts

On July 7, 2017, OSFI published draft revisions to Guideline B-20 – Residential Mortgage Underwriting Practices and Procedures. The consultation period ended on August 17, 2017.
OSFI received more than 200 submissions from federally regulated financial institutions, financial industry associations, other organizations active in the mortgage market, as well as the general public.
The cover letter includes an unattributed summary of the comments and an explanation of how these issues were dealt with in the final Guideline B-20.
Following publication of Guideline B-20 OSFI plans to assess Guideline B-21 − Residential Mortgage Insurance Underwriting Practices and Procedures for consequential amendments.

Associated Links

Cover letter (including a summary of industry comments and OSFI’s responses)
Guideline B-20 – Residential Mortgage Underwriting Practices and Procedures

About OSFI

The Office of the Superintendent of Financial Institutions Canada (OSFI) is an independent agency of the Government of Canada, established in 1987 to protect depositors, policyholders, financial institution creditors and pension plan members, while allowing financial institutions to compete and take reasonable risks.

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Credit and Mortgage Financing

By Matthew Chan • 24 Apr, 2024

Credit. The ability of a customer to obtain goods or services before payment, based on the trust that you will make payments in the future. When you borrow money to buy a property, you’ll be required to prove that you have a good history of managing your credit. That is, making good on all your payments. But what exactly is a “good history of managing credit”? What are lenders looking at when they assess your credit report? If you’re new to managing your credit, an easy way to remember the minimum credit requirements for mortgage financing is the 2/2/2 rule. Two active trade lines established over a minimum period of two years, with a minimum limit of two thousand dollars, is what lenders are looking for. A trade line could be a credit card, an instalment loan, a car loan, or a line of credit; basically, anytime a lender extends credit to you. Your repayment history is kept on your credit report and generates a credit score. For a tradeline to be considered active, you must have used it for at least one month and then once every three months. To build a good credit history, both of your tradelines need to be used for at least two years. This history gives the lender confidence that you’ve established good credit habits over a decent length of time. Two thousand dollars is the bare minimum limit required on your trade lines. So if you have a credit card with a $1000 limit and a line of credit with a $2500 limit, you would be okay as your limit would be $3500. If you’re managing your credit well, chances are you will be offered a limit increase. It’s a good idea to take it. Mortgage Lenders want to know that you can handle borrowing money. Now, don’t confuse the limit with the balance. You don’t have to carry a balance on your trade lines for them to be considered active. To build credit, it’s best to use your tradelines but pay them off in full every month in the case of credit cards and make all your loan payments on time. A great way to use your credit is to pay your bills via direct withdrawal from your credit card, then set up a regular transfer from your bank account to pay off the credit card in full every month. Automation becomes your best friend. Just make sure you keep on top of your banking to ensure everything works as it should. Now, you might be thinking, what about my credit score, isn’t that important when talking about building a credit profile to secure a mortgage? Well, your credit score is important, but if you have two tradelines, reporting for two years, with a minimum limit of two thousand dollars, without missing any payments, your credit score will take care of itself, and you should have no worries. With that said, it never hurts to take a look at your credit every once and a while to ensure no errors are reported on your credit bureau. So, if you’re thinking about buying a property in the next couple of years and want to make sure that you have good enough credit to qualify, let’s talk. Connect anytime; it would be a pleasure to work with you and help you to understand better how your credit impacts mortgage qualification.

Notes on the Federal Budget

By Mortgage Plan • 19 Apr, 2024

Sherry Cooper has done a great analysis of the upcoming Federal Budget. You can see it here: Sherry Cooper Federal Budget 2024 One of the key themes of the budget is to tax the wealthy namely through increase taxes on capital gains. Currently, 50% of capital gains are taxed. Under new proposal, 50% capital gains tax will still apply for the first $250,000 but will rise to 66.6% on income above $250,000. Implications to real estate investors: - the tax is targeted to the wealthiest Canadians BUT there will be impact to the middle class real estate investors and can lead to higher taxes for middle class Canadians. - disincentive for Canadians to buy investment properties - disincentive for Canadians to buy under a corporation as corporations and trusts are taxed for entire capital gains at 66% rather than just the gains over $250,000 for individuals. With these changes, it is important to work with a team of professionals (mortgage broker, realtor, financial advisor and accountant) that can properly advise and help you navigate the intricacies of buying and selling investment properties. Be sure to consult with a great team of knowledgeable professionals when looking to buy and sell real estate. The other changes: - increase amortization to 30 years for new builds Likely minimal effect on affordability as it likely will increase demand - increase in RRSP withdrawal limit to $60,000 from $35,000 In my career, I rarely see a first time buyer with over $25,000 in RRSPs so likely a very minimal impact on actual first time buyers Reach out to me if you have any comments or questions.

Understanding the Recent Housing Affordability Measures in Canada

By Matthew Chan • 18 Apr, 2024

In recent years, housing affordability has become a significant concern for many Canadians, particularly for first-time homebuyers facing soaring prices and strict mortgage qualification criteria. To address these challenges, the Canadian government has introduced several housing affordability measures. In this blog post, we'll examine these measures and their potential implications for homebuyers. Increased Home Buyer's Plan (HBP) Withdrawal Limit Effective April 16, the Home Buyer's Plan (HBP) withdrawal limit will be raised from $35,000 to $60,000. The HBP allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to use towards a down payment on a home. By increasing the withdrawal limit, the government aims to provide young Canadians with more flexibility in saving for their down payments, recognizing the growing challenges of entering the housing market. Extended Repayment Period for HBP Withdrawals In addition to increasing the withdrawal limit, the government has extended the repayment period for HBP withdrawals. Individuals who made withdrawals between January 1, 2022, and December 31, 2025, will now have five years instead of two to begin repayment. This extension provides borrowers with more time to manage their finances and repay the withdrawn amounts, alleviating some of the immediate financial pressures associated with using RRSP funds for a down payment. 30-Year Mortgage Amortizations for Newly Built Homes Starting August 1, 2024, first-time homebuyers purchasing newly built homes will be eligible for 30-year mortgage amortizations. This change extends the maximum mortgage repayment period from 25 years to 30 years, resulting in lower monthly mortgage payments. By offering longer amortization periods, the government aims to increase affordability and assist homebuyers in managing their housing expenses more effectively. Changes to the Canadian Mortgage Charter The government has also introduced changes to the Canadian Mortgage Charter to provide relief to homeowners facing financial challenges. These changes include early mortgage renewal notifications and permanent amortization relief for eligible homeowners. By implementing these measures, the government seeks to support homeowners in maintaining affordable mortgage payments and mitigating the risk of default during times of financial hardship. The recent housing affordability measures announced by the Canadian government are aimed at addressing the challenges faced by homebuyers in today's market. These measures include increasing withdrawal limits, extending repayment periods, and offering longer mortgage amortizations. The goal is to make homeownership more accessible and affordable for Canadians across the country. As these measures come into effect, it's crucial for homebuyers to stay informed about the changes and their implications. Consulting with a mortgage professional can help individuals explore their options and make informed decisions about their housing finances. If you're interested in learning more about these changes and how they may affect you, please don't hesitate to connect with us. We're here to walk you through the process and help you consider all your options and find the one that makes the most sense for you.