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What does the government have in store for home owners now? The rules are always changing but what does it mean for you?

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First Time Homebuyer

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Boss Mortgages The Mortgage Centre continues to update our customers as new information arises on the regulatory changes announced by the Office of Superintendent of Financial Institutions (OSFI). These changes are important to you, the client.

If you are not sure what these new rules mean for you, please do not hesitate to give anyone on the Boss Mortgages team a call, email or text. We are here to help.

 

Note: The below does not affect our Private Lenders. 

April 20th, 2018

On January 1st, 2018, the OSFI B20 Guidelines referring to Mortgage Underwriting Practices and Procedures were updated. To adhere to these new guidelines lenders will be making the following changes to their mortgage products effective April 20th, 2018.

 

  1. Business for Self (BFS) Programs

The updated guidelines require that rigorous efforts be made to verify income for all residential mortgage applicants. As a result, BFS programs that relied on stated income or business bank statements to confirm income are being discontinued.

 

  1. Equity Programs

Equity programs will now require applicants to meet debt servicing criteria. 

 


 

 

The new Mortgage Rules as of January 1, 2018 consist of the following:

Change #1: Qualifying rate stress test to all uninsured mortgages. 

Uninsured mortgage consumers must now qualify using a new minimum qualifying rate. The rate will be the greater of the five-year benchmark rate published by the Bank of Canada OR the lender contractual mortgage rate +2.0%.

How does this affect the mortgage consumer with a downpayment/equity of 20% or more? 

The biggest impact will be on the amount for which the home buyer/owner will be able to qualify. Previously, the home buyer/owner qualified at the contract rate offered by the lender. While the actual mortgage payment will still be paid at the contract rate, a higher calculation will be used for qualification purposes. 

 

 Change #2: Lenders will be required to enhance their loan-to-value (LTV) measurement and limits to ensure risk responsiveness. 

Mortgage lenders (excluding credit unions and private lenders) must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve. We are awaiting more details on this policy from lenders. As we have new information, we will update this document.

What does this mean?

 OSFI (Office of Superintendent of Financial Institutions) directs lenders (excluding credit unions and private lenders) to have internal risk management protocols in higher priced markets (sometimes called "hot real estate markets" like Toronto and Vancouver). This is a continuation of a policy already in place. Many mortgage lenders have been following the principles of the policy since the beginning of 2017. 

Change #3: Restrictions will be placed on certain lending arrangements that are designed, or appear designed to avoid LTV limits. 

Mortgage lenders (excluding credit unions and private lenders) are prohibited from arranging with another lender: a mortgage or a combination of a mortgage and other lending products, in any form that circumvents the institution's maximum LTV (loan-to-value) ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law. This is often referred to as "bundling" or a "bundle partnership". 

What does this mean?

For example: a consumer applies for a mortgage with an 80% LTV and the lender can only approve 65%. The lender then partners with a second lender for the additional 15%. The original lender then "bundles" the 15% LTV mortgage with the original 65% mortgage to form the complete 80% LTV loan. This is no longer permitted as per OFSI. 

Do I still have the option to refinance my home?

Absolutely! Home owners will still have the ability to refinance up to 80% of the value of their property with certain financial institutions. You will have to pass the same stress test which is the higher of the BoC (Bank of Canada) 5-year benchmark rate (currently 5.14%) OR the contract rate from the lender plus 2%.

Some private lenders are still lending up to 85% or higher in certain areas and situations. Call the Boss Mortgages team to discuss. 855-755-1904