New Mortgage Rules – OSFI

Our take on some bad mortgage news for our Canadian readers.

OSFI has set out new mortgage rules for borrowers commencing on Jan 1 2018.  You’ve seen it in the media, talked about it at the water cooler, or at least complained about it twice.  This directly impacts anyone looking to buy a home and particularly sucks for anyone who’s young and looking to get into this market.

Previously only those who put less than 20% down on a property were stress tested to see if they could withstand higher mortgage rates, however this has been extended.

Key takeaways:

  • Insured loans(<20% down) & Uninsured loans (>20% down) must be stress tested to ensure that the borrowers can service the debt at higher interest rates
  • ALL mortgages would be stress tested at whichever is higher – the five-year average posted rate or 2% higher than their actual mortgage rate.
  • Banks aren’t required to test to mortgage renewals for existing borrowers but they can.

why is this important?

Real estate in Toronto continues to rise.  Debt to income ratios are extremely elevated at 166%.  Canadians will struggle to service this debt and their mortgages in a rising interest rate environment.

While this move does protect the banking system in Canada from extending credit to the wrong individuals, it also makes home ownership a lot more expensive for ALL Canadians.

Tapping into the Bank of Mom & Dad for the down payment won’t work anymore if your income isn’t high enough to pass the stress test.

In summary:

  • House prices are increasing
  • Interest costs are increasing
  • The mortgage amount that you can qualify for is decreasing
  • Loan-to-Value amounts are tightening

This sucks. are there any loopholes?

Credit Unions.  Credit Unions aren’t regulated by OSFI and therefore would not be subjected to the changes we’ve discussed.

OSFI’s prescribed changes are a necessarily evil for the Canadian economy in the grand scheme of things.  It will most definitely cool down an overheating real estate market. This is forcing young professionals like yourself to have a larger down payment and reducing the size of the Real Estate Bubble in Toronto.

As a result, these two factors have never been more important:

  2. The performance of your personal investments.

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