The Office of the Superintendent of Financial Institutions (OSFI) recently announced that qualifying for a mortgage is about to get even harder for new home buyers. As of June 1, 2021, anyone who is on the market for a mortgage will need to pass a stricter stress test in order to qualify.
What does a stricter stress test mean?
If you are looking to buy a house anywhere in Canada, you must prove you can afford your mortgage payments based on the higher of the contract rate plus 2%, or a new qualifying rate of 5.25%, up from the current 4.79%.
The OSFI announced potential changes to their mortgage stress test last month, with a focus on those applying for uninsured mortgages, and confirmed the update on May 20, 2021. Uninsured mortgages are generally those with more than a 20% down payment on their home.
insured mortgages are also affected
After the OSFI announced their stress test updates coming into effect on June 1st, the Department of Finance advised that they are following suit. This means that the same stricter higher qualifying rate will apply to insured mortgages as well, or those with less than a 20% down payment on their home.⠀⠀⠀⠀⠀
This update to the stress test is expected to cut maximum buying power by between 4% and 4.5%.
If your mortgage is pre-approved before June 1, the new minimum qualifying rate does not apply to your mortgage as long as you have a signed purchase and sale agreement before the update goes into effect.
According to OSFI, approved mortgage loans or legal commitments that have been provided before June 1, 2021, and that fund after the effective date will be honoured or funded as legally required (i.e. using the current qualification rate).
The OSFI also says that, in some cases, borrowers may have received mortgage eligibility commitments or “pre-approvals” from their financial institution prior to the effective date of June 1, 2021. In such cases, financial institutions would have the discretion to underwrite the loans based on the prior qualification rate.
If you have any questions about what this stress test update means for your Parkwood home, please reach out to your Area Sales Manager and they will be happy to explain it further if it pertains to your purchasing plans!
Blog Post Photo Courtesy of Tracey Jazmin in our Former Cavanagh Showhome