What you Need to Know About the Latest Mortgage Rule Changes

Sabeena Bubber • October 17, 2017

If you've tuned into the news today, you've probably heard that there are new mortgage rules coming into effect on January 1st. 2018. Over the next week you'll most likely hear a lot of commentary on whether these rules are good, bad, necessary, or unnecessary. And no doubt someone somewhere will come to the conclusion that no one will ever get a mortgage again, and that the housing market in Canada is going to come crashing down around us. Please remember that it's the media's job to write headlines and attract eyes, so they tend to sensationalize everything. Take what you hear with a grain of salt. Mortgages will still be written, and houses will still be bought.

At the end of the day, these new rules (outlined below) will come into play, and there's nothing we can do to change the government's mind. So how do we respond? Well... as it becomes increasingly difficult to qualify for a mortgage, your goal should be to work with a mortgage professional that gives you more choices. Instead of working with a single institution; having access to a single line of mortgage products, when you work with a mortgage broker, you have access to many different lenders, with a wide variety of choices.

As mortgage rules tighten, your goal should be to find as much flexibility as possible, you do this by working with a mortgage broker. So if you have any questions about your mortgage, please don't hesitate to contact me anytime , I'd love to have a conversation with you.

Okay, so on to the changes... the biggest change to the rules surrounding mortgage qualification is that a requirement to stress test each mortgage will be now applied to all borrowers, instead of just borrowers who have less than a 20% downpayment. Qualification for all mortgages will now be made at a minimum qualifying rate which is the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.

OSFI (The Office of the Superintendent of Financial Institutions) released their final version of their new guidelines for the mortgage industry. Below is the news release from OSFI. called: OSFI is reinforcing a strong and prudent regulatory regime for residential mortgage underwriting

News Release

For Immediate Release

OTTAWA - October 17, 2017 - Office of the Superintendent of Financial Institutions Canada

Today the Office of the Superintendent of Financial Institutions Canada (OSFI) published the final version of Guideline B-20 − Residential Mortgage Underwriting Practices and Procedures. The revised Guideline, which comes into effect on January 1, 2018, applies to all federally regulated financial institutions.

The changes to Guideline B-20 reinforce OSFI’s expectation that federally regulated mortgage lenders remain vigilant in their mortgage underwriting practices. The final Guideline focuses on the minimum qualifying rate for uninsured mortgages, expectations around loan-to-value (LTV) frameworks and limits, and restrictions to transactions designed to circumvent those LTV limits.

OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages.

Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.

OSFI is requiring lenders to enhance their loan-to-value (LTV) measurement and limits so they will be dynamic and responsive to risk.

Under the final Guideline, federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve.

OSFI is placing restrictions on certain lending arrangements that are designed, or appear designed to circumvent LTV limits.

A federally regulated financial institution is 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 ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.

Quote

“These revisions to Guideline B-20 reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada,” said Superintendent Jeremy Rudin.

Quick Facts

On July 7, 2017, OSFI published draft revisions to Guideline B-20 – Residential Mortgage Underwriting Practices and Procedures. The consultation period ended on August 17, 2017.
OSFI received more than 200 submissions from federally regulated financial institutions, financial industry associations, other organizations active in the mortgage market, as well as the general public.
The cover letter includes an unattributed summary of the comments and an explanation of how these issues were dealt with in the final Guideline B-20.
Following publication of Guideline B-20 OSFI plans to assess Guideline B-21 − Residential Mortgage Insurance Underwriting Practices and Procedures for consequential amendments.

Associated Links

Cover letter (including a summary of industry comments and OSFI’s responses)
Guideline B-20 – Residential Mortgage Underwriting Practices and Procedures

About OSFI

The Office of the Superintendent of Financial Institutions Canada (OSFI) is an independent agency of the Government of Canada, established in 1987 to protect depositors, policyholders, financial institution creditors and pension plan members, while allowing financial institutions to compete and take reasonable risks.

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Finance Your Home Renovations

By Sabeena Bubber • February 19, 2025

If you’re looking to do some home renovations but don’t have all the cash up front to pay for materials and contractors, here are a few ways to use mortgage financing to bring everything together. Existing Home Owners - Mortgage Refinance Probably the most straightforward solution, if you’re an existing homeowner, would be to access home equity through a mortgage refinance. Depending on the terms of your existing mortgage, a mid-term mortgage refinance might make good financial sense; there’s even a chance of lowering your overall cost of borrowing while adding the cost of the renovations to your mortgage. As your financial situation is unique, it never hurts to have the conversation, run the numbers, and look at your options. Let’s talk! If you're not in a huge rush, it might be worth waiting until your existing term is up for renewal. This is a great time to refinance as you won’t incur a penalty to break your existing mortgage. Now, regardless of when you refinance, mid-term or at renewal, you’re able to access up to 80% of the appraised value of your home, assuming you qualify for the increased mortgage amount. Home Equity Line of Credit Instead of talking with a bank about an unsecured line of credit, if you have significant home equity, a home equity line of credit (HELOC) could be a better option for you. An unsecured line of credit usually comes with a pretty high rate. In contrast, a HELOC uses your home as collateral, allowing the lender to give you considerably more favourable terms. There are several different ways to use a HELOC, so if you’d like to talk more about what this could look like for you, connect anytime! Buying a Property - Purchase Plus Improvements If you’re looking to purchase a property that could use some work, some lenders will allow you to add extra money to your mortgage to cover the cost of renovations. This is called a purchase plus improvements. The key thing to keep in mind is that the renovations must increase the value of the property. There is a process to follow and a lot of details to go over, but we can do this together. So if you’d like to discuss using your mortgage to cover the cost of renovating your home, please connect anytime!

Fixed-Rate or Variable-Rate Mortgage?

By Sabeena Bubber • February 12, 2025

If you're looking to buy a new property, refinance, or renew an existing mortgage, chances are, you're considering either a fixed or variable rate mortgage. Figuring out which one is the best is entirely up to you! So here's some information to help you along the way. Firstly, let's talk about the fixed-rate mortgage as this is most common and most heavily endorsed by the banks. With a fixed-rate mortgage, your interest rate is "fixed" for a certain term, anywhere from 6 months to 10 years, with the typical term being five years. If market rates fluctuate anytime after you sign on the dotted line, your mortgage rate won't change. You're a rock; your rate is set in stone. Typically a fixed-rate mortgage has a higher rate than a variable. Alternatively, a variable rate is not set in stone; instead, it fluctuates with the market. The variable rate is a component (either plus or minus) to the prime rate. So if the prime rate (set by the government and banks) is 2.45% and the current variable rate is Prime minus .45%, your effective rate would be 2%. If three months after you sign your mortgage documents, the prime rate goes up by .25%, your rate would then move to 2.25%. Typically, variable rates come with a five-year term, although some lenders allow you to go with a shorter term. At first glance, the fixed-rate mortgage seems to be the safe bet, while the variable-rate mortgage appears to be the wild card. However, this might not be the case. Here's the problem, what this doesn't account for is the fact that a fixed-rate mortgage and a variable-rate mortgage have two very different ways of calculating the penalty should you need to break your mortgage. If you decide to break your variable rate mortgage, regardless of how much you have left on your term, you will end up owing three months interest, which works out to roughly two to two and a half payments. Easy to calculate and not that bad. With a fixed-rate mortgage, you will pay the greater of either three months interest or what is called an interest rate differential (IRD) penalty. As every lender calculates their IRD penalty differently, and that calculation is based on market fluctuations, the contract rate at the time you signed your mortgage, the discount they provided you at that time, and the remaining time left on your term, there is no way to guess what that penalty will be. However, with that said, if you end up paying an IRD, it won't be pleasant. If you've ever heard horror stories of banks charging outrageous penalties to break a mortgage, this is an interest rate differential. It's not uncommon to see penalties of 10x the amount for a fixed-rate mortgage compared to a variable-rate mortgage or up to 4.5% of the outstanding mortgage balance. So here's a simple comparison. A fixed-rate mortgage has a higher initial payment than a variable-rate mortgage but remains stable throughout your term. The penalty for breaking a fixed-rate mortgage is unpredictable and can be upwards of 4.5% of the outstanding mortgage balance. A variable-rate mortgage has a lower initial payment than a fixed-rate mortgage but fluctuates with prime throughout your term. The penalty for breaking a variable-rate mortgage is predictable at 3 months interest which equals roughly two and a half payments. The goal of any mortgage should be to pay the least amount of money back to the lender. This is called lowering your overall cost of borrowing. While a fixed-rate mortgage provides you with a more stable payment, the variable rate does a better job of accommodating when "life happens." If you’ve got questions, connect anytime. It would be a pleasure to work through the options together.

Mortgage Advice to Help You Through a Separation

By Sabeena Bubber • February 5, 2025

With the latest stats claiming that about half of marriages end in divorce and with around three-quarters of Canadians being homeowners, it’s important to know how to handle your mortgage if you decide to separate. Here’s a quick list of things to consider. Keep making your payments. A mortgage is a legally binding contract between you and the lender. It doesn’t take marriage into account. If your name appears on the mortgage, you're responsible for making sure the regular payments are made. A marital breakdown does not give you an excuse not to make your mortgage payments. If, during your marriage, you've relied on your spouse to make the mortgage payments and you aren’t certain payments are being made after separating, it's in your best interest to contact the lender directly to verify your mortgage is being paid. If payments aren't being made, it could affect your credit score or worse; the lender could start foreclosure proceedings. There is always a financial cost to break your mortgage. When working through how to split your finances, you decided to either refinance your mortgage, remove someone from the title, or sell the property, keep in mind that you will incur legal costs. If you’re in the middle of a term, the penalty for breaking your mortgage might be significant, especially if you have a fixed-rate mortgage. It’s certainly worth contacting your mortgage lender directly to verify the cost of breaking your mortgage. Having that information accessible when writing out your separation agreement will provide increased clarity. Listing your marital status as separated or divorced. When completing a mortgage application for securing new mortgage financing, when you list your marital status as separated or divorced, you can expect that a lender will want to see your legal separation agreement or your divorce papers. The lender wants to make sure you aren’t responsible for support payments. So if you haven’t finalized the paperwork, expect delays in securing mortgage financing. It could be harder to qualify for a new mortgage. With the separation of assets also comes the separation of incomes. If you qualified for your existing mortgage on a double income, you might find it hard to maintain the same quality of lifestyle post-separation. This is where careful planning comes in. Working closely with your independent mortgage professional will ensure you understand exactly where you stand. You’ll want to put together a plan for how to handle the mortgage on the matrimonial home. Purchasing the matrimonial home from your ex. There are special considerations given to people going through a separation to buy out the matrimonial home. Instead of looking at the transaction like a refinance where you can only borrow up to 80% of the property’s value, lenders will consider one spouse buying out the other up to a 95% loan to value ratio. This comes in handy when dividing assets and liabilities. Navigating the ins and outs of mortgage financing isn’t something you have to do alone. If you're going through a separation and you’d like to discuss all your mortgage options, please connect anytime. It would be a pleasure to walk you through the process.