New, tougher mortgage stress test?  What will this do to our red hot real estate market?

There is big news that was announced earlier this month and it might affect home buyers in the market for a mortgage. The Office of Superintendent of Financial Institutions (OSFI) released a proposal to increase the qualifying mortgage rate for uninsured mortgages. Uninsured mortgages are ones where there is more than a 20% down payment.

The new qualifying rate will increase from the posted 5 year fixed rate, which is currently 4.79%, to the contract rate plus 2% or 5.25%, whichever is greater. This would effectively qualify consumers for 4% less mortgage. On a $1,000,000 purchase with a $200,000 down payment, buyers would qualify for around $755,000 vs $800,000.  

Many are concerned that this could have an effect on our market by slowing it down. 

Why is OSFI wanting to tighten requirements? 

The reason for the new proposal that will make the underwriting process more strict is simply to protect lenders and banks from taking on extra risk. They claim they are taking “proactive action” to ensure that banks will remain resilient after the pandemic. 

But, what does that say for our housing market that has been hotter than ever this year? Will it slow it down at all, and if so, by how much?

Well, I think the effect will likely have no material impact. However, it could have a psychological effect as the media has been quick to jump over any negative news in their never-ending quest for negative headline grabbing news.  

Should I look to buy now?

With the new proposal, it may be wise for Canadians to act fast when it comes to getting a mortgage. Since requirements are tightening, now may be your best chance of securing a good deal or a low rate. Go for it before it’s too late is what I say!

My bottom line

As a mortgage broker I like to focus on strategy and personal goals. If you want to own your home or own more than one property, stick with your vision and your plan. Don’t listen to those that say you can’t do it.  Put that crowd on mute. It will be the best decision in the end if you ask me. 

The best time to buy real estate was yesterday, the next best time is today.  

You can read more about the new requirements here.

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114; steve@canadamortgagenews.ca