Call Marg: 705-446-1762

Yesterday, the Office of the Superintendent of Financial Institutions Canada (OSFI) released the final version of Guideline B20 – Residential Mortgage Underwriting Practices and Procedures, effective January 1, 2018.  The Guideline applies to all federally regulated financial institutions.

According to the release: 

The changes to Guideline B-20 reinforce OSFI’s expectation that federally regulated mortgage lenders remain vigilant in their mortgage underwriting practices. The final Guideline focuses on the minimum qualifying rate for uninsured mortgages, expectations around loan-to-value (LTV) frameworks and limits, and restrictions to transactions designed to circumvent those LTV limits.

What does this mean to you, as a borrower?  According to the OSFI release:

  1. Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.  This is also referred to as the ‘stress test’ – in other words, you’ll need to qualify at a higher interest rate in order to secure uninsured mortgage financing starting Jan.1.18.

STRESS TEST EXAMPLE:

Let’s say you’re hoping to borrow a mortgage of $100,000, with a 5 year term, and a 25 year amortization:

A Major Bank’s 5 year rate today is 3.39% – so the mortgage payment would be $493.48

Bank of Canada’s 5 year benchmark rate today is 4.89%, so the mortgage payment would be $575.36,

BUT WAIT….

4.89% is only 1.5% higher than that Bank’s rate (which would be considered the contractual rate in this example) so we would have to base it on the contract rate plus 2% or 3.39% + 2% = 5.39%

Contract rate +2% = 5.39%, so the mortgage payment would be $604.00 per month.

Instead of qualifying at $493.48 per month, the borrower would need to qualify at $604.00 per month, and for some folks, that difference might be the deal breaker for financing.

  1. Loan-to-value (LTV) ratio limits must be established by all federally regulated financial institutions and they must stick to appropriate limits that reflect the level of risk involved. Limits must be updated as housing markets or economic environments change.
  2. In addition to the above, lending arrangements which are designed or appear-to-be-designed to go-around these loan-to-value limits – or any other limits or laws – will no longer be tolerated (ie. the use of a combination of mortgage and other loan products in order to circumvent LTV or other limits.)

 Superintendent Jeremy Rudin offered,  “These revisions to Guideline B-20 reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada.”

Marg Scheben-Edey is a Broker with RE/MAX four seasons realty limited, Brokerage in beautiful Collingwood, ON. With three decades of experience, Marg is a leader in the local real estate marketplace and is ready to help guide both Buyers and Sellers in achieving their real estate goals. Email Marg

Monthly E-Newsletter

Marg Scheben-Edey

Real Estate Broker
Market Value Appraiser - Residential
Accredited Green Broker™
(designated by the National Association of Green Agents & Brokers)

RE/MAX four seasons
realty limited, Brokerage
Each Office Independently Owned & Operated
67 First Street, Collingwood L9Y 1A2

Contact Marg

 Direct: 705-446-1762

Prefer Text? 705-446-5066

Email Marg

© Copyright 2017 collingwood-bluemountain.com. All Rights Reserved.

Privacy Policy | Sitemap

Get Marg's Newsletter Delivered to Your InboxMonthly

Hey, it never hurts to know more about the local market and the goings on, does it? Stay “in-the-know” about the South Georgian Bay real estate market as well as local news, great new businesses and other fun stuff. At least you’ll have some impressive local trivia at the next cocktail party! Now, I just need a little info from you. (This information will never be shared – I promise!)

Success!

Pin It on Pinterest