The Top Mortgage Rules of 2018 for Canadians

The Top Mortgage Rules of 2018 for Canadians 1024 544 Guardian Financing

If you are a Canadian considering buying a home, then you may have heard about the changes in mortgage rules which became effective in January 2018. Here is a look at the major ones which will impact you directly if you were thinking about going for a mortgage:

All uninsured mortgages will have to go on a stress test

From January 2018, every uninsured mortgage consumer will have to be qualified for a mortgage using a new minimum rate. The rate to qualify will be the five year benchmark rate given by the Bank of Canada or it will be that of the lender contractual mortgage rate at +2%. Before the change in the rules, consumers were qualified at the rates offered by the lender. Though the actual mortgage will still be paid according to the lender’s rate, the qualification process will feature a slightly higher calculation.

Lenders will have to improve their loan to value ratio and limit for risk responsiveness

Mortgage lenders, with the exemption of private lenders mortgage and credit unions, must have a more appropriate LTV ratio limits which must reflect the risks they are exposed to while lending. It implies that lenders will now have internal risk management protocols when dealing with highly priced markets such as Toronto.

There will be restrictions on transactions which appear to have been designed to avoid the LTV limits

Mortgage lenders, with the exemption of private lenders and credit unions, are not allowed to arrange with other lenders any transactions designed or which appear to have been purposefully created to avoid the limitations imposed by the LVT ratio or limits. For example, if one makes an application for a mortgage at a rate of 75% LVT, and the lender can avail just 65%, the lender then agrees with another lender to get the remaining 10%. This kind of arrangement is what is now prohibited with this rule.