Mortgage Rules: January 1, 2018

Monday Nov 06th, 2017

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Three new rules are being implemented as of January 1, 2018.  Here are the details, and what they mean to real estate purchasers.

 

1. Stress Tests: Uninsured Mortgages
In the past, only insured mortgages would face tougher stress tests.  With this first new change, anyone who is putting down more than 20% will also face new challenges.  These purchasers are required to qualify for their mortgages using a new minimum qualifing rate.

 

The rate will be the greater of the five-year benchmark rate published by the Bank of Canada OR the lender contractual mortgage rate +2.0%.

 

This is most impactful on the amount a purchaser can qualify for. The borrower will still qualify for the contract rate, but will have to undergo this stress test first.  Example below:

 


2. LTV Increase to Mitigate Risk
Mortgage lenders, excluding private lenders, must enhance their current loan-to-value (LTV) ratio to reduce the amount of risks, such as those taken on with borrowers.  This is a response to hot markets and put in place to prevent them in the future.

 

3. Avoidance of LTV
Mortgage lenders are prohibited from arranging a mortgage, or a combination of a mortgage and other lending products that circumvents their maximum LTV ratio, or any requirements established by law, with any another mortgage lender.  The idea of "bundling" or partering with another lender is what this is a response to.  For example, Mr. X applies for a mortgage with an 80 per cent LTV, but is only approved for 65 per cent by Lender A. Lender A partners with Lender B for the additional 15 per cent. Lender A “bundles” the 15 per cent LTV mortgage with the original 65 per cent to form the loan. This is no longer permitted.


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