Canadian Real Estate Buyers To Face OSFI’s Tighter Mortgage Regulations (B-20)

The Office of the Superintendent of Financial Institutions known as OSFI (the watchdog for mortgages in Canada) has set new Stress Test for all mortgages, Uninsured and Insured. This rule takes place starting January 1, 2018 on all mortgages. Here is what this means...

The Current Mortgage Limits until December 31, 2017

Uninsured Mortgages currently require a down payment of 20% or more, which means you are entitled to a mortgage approximately 7 times your income. So if you earn $100,000 income, you can qualify for a $700,000 mortgage. These mortgages do not require default insurance.

Insured Mortgages currently represents those mortgages where the down payment is less than 20%, which means you are entitled to a mortgage approximately 5 times your income. So if you earn $100,000 income, you can qualify for a $500,000 mortgage. These mortgages require default insurance from an insurer such as CMHC, Genworth or Canada Guaranty.

New Mortgage Limits starting January 1, 2018

All Mortgages Uninsured and Insured will have a limit starting January 1, 2018 which will be approximately 5 times your income, regardless of the mortgage being Insured or Uninsured. So if you earn $100,000 income, you can qualify for a $500,000 mortgage regardless of how much down payment you put.

Long story short....One will be locked with the financial institution where mortgage exists and will be at the that institution's mercy to re-finance or not. Since there will be no chance for most to pass the stress test with other banks, bank which holds current mortgage will be able to dictate the rate and terms it desires.

Very unfortunate chain of events is happening, neither first time home buyers nor those who were putting aside 20 percent for their down payment will be able to afford anything other than a condo unit, which at this point is not a cheap solution either.  Will be forced to rent and rents have gone up lately as well. This situation will bring a shortage of inventory to a real estate market as home owners would not want to sell lower than what their mortgage amounts are.

The question is why all these rules within such a short time period? Is this a healthy solution for an overall state of economy at this point which lately was heavily dependent on a real estate market?