The Office of the Superintendent of Financial Institutions (OSFI) has announced a change in mortgage rules. Last week, it announced that as of June 1, the qualification rate would increase from 4.79% to 5.25% for all mortgages.
The real estate market is in turmoil. In this context, will this tightening have the effect of slowing the market? The increase in the qualification rate will impact everyone, and reduce the borrowing capacity for all applications.
Changing mortgage rules: what is the qualification rate for?
The qualifying rate does not determine the interest rate. This element of the mortgage rules consists of a safety margin in case rates increase.
This measure has been in place for 5 years, the principle is simple. When you are granted a mortgage loan, a rate is simulated (the qualifying rate) as if the interest rate were higher than the one you are granted. This ensures that you will still be able to repay the loan if the rates start to rise.
The change that comes into effect on June 1 affects all uninsured mortgages also called conventional, the qualification rate increases from 4.79% to 5.25%. This reduces the borrowing capacity.
Who is concerned?
Those considering a mortgage refinancingA property purchase, regardless of the down payment (insured or not).
Impact of changes in mortgage rules
The impact of the change in the qualification rate reduces the borrowing capacity by about 4.4%.
Homeowners who wish to refinance in order to access a home equity line of credit are not impacted. In fact, the qualifying rate is already higher than 5.25%.
We believe that tightening announced by OSFI will not stop the overbidding on homes for sale, but it may dampen the spirits of those with renovation projects, already cooled by increases in material prices.
Our brokers are available to help you evaluate your borrowing capacity, or with any refinancing requests.
