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Tag Archives: Mortgage

Mortgage Stress Test Qualifying Rate to Rise on June 1, 2021

In an attempt to cool Canada’s very hot housing market, the Office of the Superintendent of Financial Institutions (OSFI), our banking regulator, has decided to intervene with one very specific policy change: raise the qualifying interest rate for new uninsured mortgages from 4.79% to 5.25%, or the mortgage contract rate plus 2% — whichever is higher — starting on June 1, 2021.

What is an uninsured mortgage?

  • An “Uninsured Mortgage” is any mortgage where the downpayment is 20% or more of the cost of the home.
  • An “Insured Mortgage” occurs when a buyer has downpayment of 5% – 19%. In this case, the buyer is required to purchase mortgage default insurance, which protects the bank (or lender) from default should the buyer find themselves unable to pay the mortgage.

Who does this change impact?

  • Mortgage stress testing is performed on ALL new mortgage applications, or mortgage refinance applications, not just first-time home buyers.
  • Uninsured mortgages are required for any property over $1 Million, rental properties, mortgage refinances and amortization period that exceeds 25 years.
  • MANY first-time home buyers have insured mortgages.

What is the net impact of the change?

  • The translation is a reduction in buying power of approximately 5% for the affected transactions.

When does the change occur?

  • The policy comes into place June 1, 2021.
  • Anyone who is pre-approved before that time will be grandfathered in under the current stress-test rate of 4.79%.

The idea behind the change is to cool the housing market without making it more difficult for first-time home buyers who, in many instances, will still be impacted by this change. As a result of recent dramatic price increases in the market, most first-time purchasers are obligated to put down more than 20% in order to obtain a mortgage with affordable payments. But, like anything else, only time will tell what the impact of this seemingly small change will be.

Our team has the expertise to help you through the acquisition of your next property from beginning to end. Let us connect you with the right mortgage professional to help you maximize your buying power in this competitive market.

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Changes to High-Ratio Mortgage Rates Announced — January 2017

As the Canadian housing market undergoes some significant changes with rising interest rates, changes to mortgage underwriting rules creating barriers to entry in the housing market and increases in property taxes across Ontario, it seems like everyone’s jumping on board to make owning a house more expensive. CHMC has now announced that it will be raising rates on high-ratio mortgages, followed by a matching announcement from private lender Genworth Financial a couple of days later.

What is a high-ratio mortgage?

Mortgages can be divided into two categories from a loan-to-value perspective: conventional and high-ratio. Conventional mortgages are when the borrower has a down-payment of more than 20% and a high-ratio mortgage is when the borrower has a down-payment of less than 20%. High-ratio mortgages are insured through either a private source (Genworth Financial Canada) or a government source (Canada Mortgage and Housing Corporation). To clarify, if your down-payment is less than 20%, you are required as a homeowner to purchase Mortgage Default Insurance that protects the lender in the case you default on your mortgage.

So what’s new?

The two main sources of Mortgage Default Insurance in Canada announced recently that they will be raising the rates on high-ratio mortgages in an effort to increase the cash they have on hand to hold against their mortgages (see chart for new rates).

First, CMHC announced their rate increases which were as follows:

  • According to CMHC, the changes will work out to an extra $5 a month, on average, per borrower.
  • Increased rates are in effect as of March 17, 2017.
  • This will not affect homeowners who have existing mortgages, only new applications received as of March 17.

Two days later, Genworth Financial announced they would be matching CHMC’s new rates as well as the date of implementation.

Do you have questions about real estate and mortgage financing? Contact a member of our team to find out more.