Three Mortgage Rules in 2018 and Their Effects on Consumers

Most Canadians looking forward to acquiring mortgages have become aware that the rules have changed, and the noose has become tighter as far as qualifying for mortgages is concerned. The regulations that took effect beginning January 2018, have completely altered the playing field, and if you were considering opting for a mortgage anytime soon, here is a brief look at the top three changes and how they will potentially affect you:

Rate stress test for all uninsured mortgages

All uninsured mortgage consumers will now have to undergo a new qualifying rate, which will include the average five-year benchmark rate by Bank of Canada, or a contractual rate of +2.0%. This is what is known as the stress test, and it will hugely impact the number of mortgages consumers will access. In the past, all that mattered was the contract rate, but with the new laws, the contract rate will still apply, and a higher calculation will be used throughout the qualification process.

Lenders to enhance loan to value measurement

The new rules also require lenders to establish and stick to appropriate loan to value ratio limits, which must mirror the risks and the updates happening around the housing market, and the overall economy in general. This means that lenders must have appropriate protocols for internal risk management; especially in high-value markets such as Vancouver and Toronto. This is an enhancement of a policy that is already working, and most lenders have been adhering to this principle for close to one year now.

Restrictions on certain lending arrangements

Finally, the new rules will see mortgage lenders restricted from having arrangements with other lenders. For instance, no lender will be allowed to have a mortgage or a combination of mortgages in any form, more than the lenders’ loan to value ratio. In other words, lenders will no longer have the pleasure of bundling or getting into bundling partnerships.