Now that Canada’s new mortgage stress test rules have been in place since January 1, arming home buyers with a best practices tool kit is in order.
Introduced by the Office of the Superintendent of Financial Institutions (OFSI), the new stress test requires the qualifying rate for an uninsured mortgage to be the greater of the Bank of Canada’s benchmark rate or the rate homebuyers negotiate with their financial institution plus two percentage points.
Financial experts across the country are making recommendations that start with ensuring your timing is right for the mortgage plans you have in mind. For example, some contracts that may have been signed prior to January 1 of this year may still fall under the old rules. This would include purchases made prior to January 1 even if the closing date falls after January 1, however the purchase offer in these instances must be considered firm.
Canada’s financial advisors are also recommending potential home buyers look to clear their debts before they start shopping for a mortgage. This would be one definitive way to ensure the new stress test rules don’t disrupt home-buying plans.
Those who took advice to lock down a mortgage pre-approval prior to the start of 2018 and received an exemption to the rules with the idea they would buy a home within 120 days of being pre-approved now need to contact their mortgage broker. Analysts are recommending this group work with a broker and pay close attention to the fine print, so they have a clear understanding of the 120-day deadline and what all will be required to meet it.
Finally, analysts also caution owners who already have a mortgage. If you want to switch lenders at renewal, you will have to requalify under the new stress test. This is also a perfect time to review your financial and mortgage plans.
Contact me if you are unsure how the new stress test will impact your long term home financing plans.