Pattie Lovett-Reid: What the new uninsured mortgage rules mean for homebuyers


HUNTSVILLE, ONT. – This is not the first time and it will not be the last time that the Office of the Superintendent of Financial Institutions (OSFI) has changed the eligibility rules for uninsured mortgages (i.e. residential mortgages with a down payment of 20% or more).

As of June 1, even with a large down payment, the minimum allowable rate for an uninsured mortgage will be the higher of the mortgage contract rate plus 2%, or 5.25%.

Why are they doing this?

The aim is to protect buyers who are too thin and have little leeway in the event of a rate hike. In other words, it will make it harder for homebuyers to qualify for a mortgage and reduce the amount of the mortgage a household can qualify for by about 5%.

The goal is not just to slow down the housing market by reducing demand while forcing Canadians to save more. It is about protecting the current measures of loan quality and ensuring that they remain very strong.

It is clear that the housing market has been very hot in parts of Canada due to lack of supply, increased demand and competitive bidding, while at the same time Canadians are still very much in debt.

Last week, the Governor of the Bank of Canada said the quality of mortgages declined during the pandemic and the central bank repeated warnings that the housing market was one of the system’s greatest risks. Canadian financier.

But before panicking, Canada did not experience an increase in mortgage arrears seen in the United States in part thanks to payment deferrals at the start of the pandemic. Credit card arrears also remain very low. Debt levels may be high, but Canadians still manage their payments efficiently.

However, this remains a risk in the event that the economy continues to recover and requires less stimulus.

This kind of momentum could create the perfect financial storm for households living so close to the margin that they may be unable to make their mortgage payments if rates start to rise. OSFI tries to protect not only the homeowners, but the lender as well.

Call to Action: If you’re looking for a home, make sure you’re pre-approved. You may be grandfathered under the current stress test in place for those approved before June 1, but this is at the discretion of the lender. So don’t assume grandfather rules apply without checking first.

For anyone who has ever purchased a home, it would be a good idea to get mortgage approval before June 1, as this should allow you to qualify under current conditions.

And finally, if you need to refinance, you may want to seek approval before the new rules go into effect on June 1.

The good news is that we have a strong Canadian financial system and Canadian households have been resilient in this economic environment. Yet it still makes financial sense to err on the side of caution, even if the tougher stress test will have only a modest effect on the housing market in the second half of the year as plans to move forward. economic reopening come into effect.

We’ll also see how strong the big banks’ balance sheets are when they start reporting Q2 earnings on Wednesday.

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