Mortgage Minute

UPCOMING CHANGES TO UNINSURED MORTGAGES

ALISA ARAGON-LLOYD

On April 8, 2021, the Office of the Superintendent of Financial Institutions (OFSI), which governs all federally regulated financial institutions, made an announcement that it proposed to increase uninsured mortgages’ qualifying rate to the higher of the mortgage contract rate plus 200 basis point or 5.25 per cent as a minimum floor. This proposed change comes after several of the Big Five Banks called for regulatory action to slow the red-hot housing market. The current qualifying rate, which is 4.79 per cent, is based on the posted rates of the country’s six largest lenders.

Uninsured mortgages are any mortgages where borrowers are putting more than 20 per cent down payment and are qualifying at 30-year amortization. This would be for purchases and refinances of owneroccupied properties or rentals.

The release from OSFI mentioned, “The minimum qualifying rate adds a margin of safety that ensures borrowers will have the ability to make mortgage payments in the event of a change in circumstances, such as the reduction of income or a rise in mortgage interest rates. As mortgages are one of the largest exposures that most banks carry, ensuring that borrowers can repay their loans strongly contributes to the continued safety and soundness of Canada’s financial system.” The comment period for this announcement ends on May 7th. OSFI reported that they would communicate the revised B-20 Guidelines by May 24th with an implementation date of June 1st, 2021.

This pending change will not impact insured mortgages, which means borrowers that are putting less than 20 per cent down payment and are buying a property under $1 million, or insurable mortgages where borrowers are putting more than 20 per cent down payment and are buying a property less than $1 million and are qualifying at a 25-year amortization, are exempt. The federal government oversees mortgage qualification for insured mortgages. Time will tell if Canada Mortgage and Housing Corporation (CMHC) and the Finance Department decide to follow OSFI’s changes by tightening qualifying rules for insured loans, which will impact first time buyers.

If you have any questions and find out how this proposed change can impact your buying power, please talk to a Mortgage Expert.

Alisa Aragon-Lloyd. obtained her Mortgage License from the University of British Columbia and started her own mortgage business in 2011. She has recently established a new company, Bridgestone Financing Pros, and is on the Board of Directors for the Homebuilders Association of Vancouver (HAVAN).

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