New Mortgage Rules

Steve Winters
Steve Winters
Published on January 11, 2018

Canada posted year-over-year residential price gains in 2017 across most regions. Now in 2018, many housing markets, including the St. John’s real estate market, could see reduced purchasing power resulting from the new OFSI mortgage rules that took effect on January 1, 2018.

What the what???

If you’re among the 37 per cent of Canadians who are not aware of the change in the new mortgage rules and how they might affect them, read on. Here’s the condensed version of the new mortgage rules, how they may affect you, and how to forge ahead with purchase plans.

Last October, Canada’s federal financial regulator announced that all uninsured mortgage borrowers (those with a down payment of 20 per cent or more) must now qualify against the Bank of Canada’s five-year benchmark rate (currently 4.99 per cent), or at their contractual mortgage rate, plus two per cent. This, in an effort to ensure borrowers can service their mortgage debt when interest rates rise – which experts predict will happen this year.

The new mortgage rules follow a similar stress test that was applied to insured mortgages with less than 20-per-cent down payment, in October 2016.

The new mortgage rules are expected to have the greatest impact on first-time homebuyers in Victoria, Greater Vancouver, Kelowna, North Bay, London-St. Thomas, Barrie, Hamilton-Burlington, Greater Toronto Area, Durham, Kingston, Ottawa, Halifax and in the St. John’s real estate market.

According to a recent survey conducted by Leger on behalf of RE/MAX, of the 58 per cent of Canadians who are aware of the new OSFI stress test regulations:

  • 27% believe they will not be impacted by the new mortgage rules
  • 18% believe they will be impacted by the changes
  • 13% are unsure of how they will be impacted by the changes

In St. John’s, the new mortgage rules may not affect you if:

  • you qualify at the higher rate – as of now, 6.99 per cent;
  • you were pre-approved for a mortgage before on or before December 31, 2017;
  • your mortgage refinancing agreement was arranged on or before December 31, 2017;
  • you signed a purchase agreement on or before December 31, 2017.

Tips to build a budget – stick to it

  1. Maintain a financial buffer of at least three to six months, to soften the blow of interest rate increases and unexpected bumps in the road.
  2. The mortgage you qualify for and what you can actually afford are two very different things. Look at your lifestyle, now and in the future, and consider how your mortgage payments and ongoing home costs will impact you. When buying a home, you might have to make some compromises on lifestyle in the interest of homeownership.
  3. Buying a home in the St. John’s Metro area involves more than just mortgage payments. Ongoing expenses include maintenance, home insurance, property taxes, and utilities.

If you are curious to see how the new mortgage rules changes the chances of you buying a home in the St. John’s real estate market, reach out to your mortgage specialist or lender.  Of course you can always contact me and I can assist you and put you in touch with the right person to answer all your questions.