B20 Mortgage Rule Changes January 2018

B20 Mortgage Rule Changes January 2018

The Office of the Superintendent of Financial Institutions (OSFI) issued a revision to Guideline B-20 on October 17, 2017. The changes will go into effect on January 1, 2018, and will require conventional* mortgage applicants to qualify at the Bank of Canada's five-year benchmark rate or the customer's mortgage interest rate +2%, whichever is greater. (*Conventional mortgages has 20% or more downpayment/equity)

OSFI is implementing these changes for all federally regulated financial institutions. As a result, some customers looking to purchase a home or refinance may experience a reduction in the total principal amount they are qualified to borrow.


 How could these changes affect your buying power? 

Expect the average Canadian's home purchasing power for a given income to be reduced 15-20%.

Here's an example of the impact the new qualifying rate will have on the maximum mortgage proceeds and home purchase price.  Amounts are based upon a combined Canadian family income of $75,000, 5-year fixed term mortgage at a contractual rate of 3.39%, 25-year amortization, $100,000 available for down payment and $700 in other monthly debt obligations:

 Up to December 31, 2017After January 1, 2018
Contract Rate3.39%3.39%
Qualifying Rate3.39%5.39%
Maximum Mortgage Amount$400,000$325,000
Available Down Payment$100,000$100,000
   
Home Purchase Price$ 500,000$425,000

A customer's maximum mortgage amount will be influenced by other factors including product and term selected, amortization period, other debt obligations and credit score.

Most lenders will honour the information below, however, if you're not certain of your particular lender's policy, please contact your mortgage broker or the branch that you obtained your preapproval from.

Changes to existing policies and procedures may impact applications initiated before or after January 1, 2018.

Timeline:Pre-Approval:
 
Purchase Transactions or Refinances:
Before January 1, 2018Pre-Approvals committed
before January 1st will remain valid up to 120 days following the initial credit decision.
Approved applications closing before or beyond January 1stwill remain valid; no re-adjudication is required as a result of the qualifying rate update.
On and after
January 1, 2018
Any material changes to the request post January 1st may require re-adjudication using updated qualifying rates.Material changes to the request post January 1st may require re-adjudication using updated qualifying rate rules.

Additional information regarding the new rules and how they may be administered by various lenders will be shared as it becomes available.


Are you ready to buy a home?  Now may be a great time ... Give us a call, we're always happy to help!

 ~ Cynthia Cherie


Case study scenario contributors: TD Canada Trust,  Verico Canada & Balance Mortgages Inc.


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Phone: 780-718-1598
Dated: November 22nd 2017
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