Canada’s Office of the Superintendent of Financial Institutions (OSFI) has finalized new rule changes for new government-backed uninsured mortgages.
The changes are part of the final version of Guideline B-20 − Residential Mortgage Underwriting Practices and Procedures which applies to all federally regulated financial institutions.
As of January 1, 2018, home buyers who don’t require mortgage insurance – those with a downpayment of 20 per cent or more – will be required to have their finances stress tested at higher rates.
Under current OSFI rules borrowers with a down payment less than 20 per cent of a home must purchase mortgage insurance.
The minimum qualifying rate for uninsured mortgages will be:
- the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate plus two per cent, whichever is higher.
On a $500,000 home with a $50,000 down payment, Canada Mortgage and Housing estimates a borrower would be charged an extra $13,950 to insure the $450,000 mortgage.
The new stress test rules won’t apply to mortgage renewals as long as they are with the borrower’s existing lender.
OSFI will also require lenders to enhance their loan-to-value (LTV) measurement and limits to be responsive to risk so that they are not providing mortgages in excess of the value of the home.