If you have been waiting to hear what the Guideline B20 lending changes will be, the wait is over. Published today are the new guidelines which go into effect January 2018.
A brief summary of the changes are:
- A new minimum qualifying rate, or “stress; test” for uninsured mortgages (mortgages where clients are putting 20% or more down).
- Guideline B-20 now requires mortgage clients to qualify on a minimum rate based on the greater of the five year BOC rate or the contract mortgage rate +2%.
- Lenders are now required to enhance their loan-to-value (LTV) measurement and limits so they will be dynamic/fluid and responsive to risk.
- This means lenders must establish and adhere to appropriate LTV ratio limits that are reflective of risk and can be updated as housing markets and the economic environment evolve.
- Office of the Superintendent of Financial Institutions (OSFI) is placing new restrictions on lending arrangements that appear designed to circumvent loan-to-value (LTV)limits. ie Mortgage Bundling
- Lenders are prohibited from arranging mortgages with other lenders, including the combination of a mortgage and other lending products in any form that exceeds the institution’s maximum loan-to-value This applies to limits in its residential mortgage underwriting policy and any requirements established by law.
To read the announcement in full-http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/Pages/B20_dft_nr.aspx
The immediate effect will be the “stress test” for conventional mortgages, meaning those where your buyer has 20% down payment or more. Currently those clients can qualify at contract rate (the actual rate of their mortgage), effective 2018 they will have to qualify like they are paying 2% higher. As an example: In order to buy a $300,000 home today you would have to qualify to pay $1450/m (today’s rate at 3.2% for example), effective January 2018 you will have to qualify like you are going to pay $1780/m (3.2% +2%=5.2%)… essentially removing $330 worth of monthly buying power. To put it another way; if you qualified for $300,000 today, all things being equal you would qualify for about $250,000 next year. It’s significant.
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