The Office of the Superintendent of Financial Institutions (OFSI) confirmed on October 17 that all mortgage applicants would have to pass a “stress test” on their qualifying income – no matter how high their down payment as of January 1st, 2018.
Last fall a stress test was introduced to all applicants of insured mortgages (borrowers with a down payment less than 20% down), but has now been extended to all mortgage applicants including uninsured borrowers, as that group comprises a larger segment of the mortgage market.
The test requires an applicant’s income to qualify them for mortgage repayments at the Bank of Canada’s five-year posted rate, higher than the discounted rate they would pay in reality, and currently 4.89%. The new mortgage requirement is said to create a buffer against future rate rises for the borrowers and further protection of the financial institutions.
The move is said to reduce Canadians’ home-purchasing power by around 20% as the higher interest rate will reduce the maximum mortgage that buyers will be able to borrow. So if you’re looking at $500,000 home now, as of Jan 1, 2018, your purchasing power has been reduced to $400,000.