On September 16th, the federal government announced changes to the maximum amortization period and the home price cap for insured mortgages. On September 25th, the Office of the Superintendent of Financial Institutions (OSFI) announced changes to the mortgage stress test for renewals.
POLICY AMENDMENTS
1. Effective November 21st, borrowers seeking to renew their uninsured mortgage with another lender will not have to pass the mortgage stress test. The renewal stress test already doesn’t apply to insured mortgages.
2. Effective December 15th, all first-time homebuyers and all purchasers of newly-built homes will be able to access 30-year amortizations on insured mortgages (the previous limit was 25 years).
3. Effective December 15th, mortgage default insurance will be available on homes priced up to $1.5 million (up from the $1.0 million limit that has been in place since 2012).
WHAT DOES THIS MEAN
● This spring, the federal government extended the maximum amortization period from 25 to 30 years for first-time homebuyers on newly-built homes only. By expanding that to include all home purchases, this will allow more first-time homebuyers to get into the market.
○ Increasing the amortization period from 25 to 30 years will increase buyer purchasing power by 6%.
○ 30-year amortizations for all buyers of newly-built homes should increase demand for pre-sales at the margin and incentivize more construction. Historically, pre-sales have accounted for about 25% of all housing sales in Metro Vancouver, 11% in the Central Okanagan, and 9% in Greater Victoria.
WHAT WE STILL DON’T KNOW
● OSFI has not officially announced the stress test adjustment, but this is expected on November 21st. OSFI has confirmed the coming changes with multiple news organizations.
● Under the current $1 million insured mortgage home price cap, buyers must put 5% down on the first $500k of the home and 10% down on the portion between $500k-$1 million. We don’t yet know the downpayment requirements for the portion between $1-$1.5 million when the new cap comes into effect.
Joanne Hoekstra is a Real Estate Advisor with rennie & associates realty and can help you find a pre-sale home that fits your needs! Joanne enjoys helping buyers find their perfect community and working with new and experienced investors in building their real estate portfolios. She has successfully sold out six pre-sale projects which included detached homes, duplexes, townhomes and condominiums. As a listing expert, Joanne ensures the best customer service for her clients from listing through to completion of the sale and applies her marketing and sales expertise to each home. Joanne can be reached at 604-722-6645 or jhoekstra@rennie.com or follow Joanne on Facebook at www.facebook.com/jhoekstra.rennie.
POLICY AMENDMENTS
1. Effective November 21st, borrowers seeking to renew their uninsured mortgage with another lender will not have to pass the mortgage stress test. The renewal stress test already doesn’t apply to insured mortgages.
2. Effective December 15th, all first-time homebuyers and all purchasers of newly-built homes will be able to access 30-year amortizations on insured mortgages (the previous limit was 25 years).
3. Effective December 15th, mortgage default insurance will be available on homes priced up to $1.5 million (up from the $1.0 million limit that has been in place since 2012).
WHAT DOES THIS MEAN
● Removing the stress test requirement for uninsured mortgages on straight renewals will allow borrowers to shop around for better rates at renewal and increase competition from lenders on renewing mortgages, which should bring down mortgage rates on renewals.
○ Previously, any borrower wishing to renew their mortgage with another lender had to pass the mortgage stress test, proving that they could continue servicing their mortgage at the Bank of Canada’s minimum qualifying rate or the renewal rate plus 2% (whichever is higher).
○ A straight renewal is where there is no adjustment to the loan amount or amortization schedule.
● This spring, the federal government extended the maximum amortization period from 25 to 30 years for first-time homebuyers on newly-built homes only. By expanding that to include all home purchases, this will allow more first-time homebuyers to get into the market.
○ Increasing the amortization period from 25 to 30 years will increase buyer purchasing power by 6%.
○ 30-year amortizations for all buyers of newly-built homes should increase demand for pre-sales at the margin and incentivize more construction. Historically, pre-sales have accounted for about 25% of all housing sales in Metro Vancouver, 11% in the Central Okanagan, and 9% in Greater Victoria.
● Increasing the home price cap on insured mortgages to $1.5 million will open up a significant portion of the housing market to buyers who have less savings for a downpayment. Previously, the purchase of a home for more than $1 million required a minimum downpayment of 20%.
○ Approximately 18% of active listings in Metro Vancouver are priced in the $1-$1.5 million range versus 24% in the Central Okanagan and 23% in Greater Victoria.
○ Insured mortgage rates are typically 20-30 basis points lower than uninsured rates, further reducing monthly mortgage payments and overall interest costs. This largely offsets the insurance premium.
WHAT WE STILL DON’T KNOW
● OSFI has not officially announced the stress test adjustment, but this is expected on November 21st. OSFI has confirmed the coming changes with multiple news organizations.
● Under the current $1 million insured mortgage home price cap, buyers must put 5% down on the first $500k of the home and 10% down on the portion between $500k-$1 million. We don’t yet know the downpayment requirements for the portion between $1-$1.5 million when the new cap comes into effect.
Joanne Hoekstra is a Real Estate Advisor with rennie & associates realty and can help you find a pre-sale home that fits your needs! Joanne enjoys helping buyers find their perfect community and working with new and experienced investors in building their real estate portfolios. She has successfully sold out six pre-sale projects which included detached homes, duplexes, townhomes and condominiums. As a listing expert, Joanne ensures the best customer service for her clients from listing through to completion of the sale and applies her marketing and sales expertise to each home. Joanne can be reached at 604-722-6645 or jhoekstra@rennie.com or follow Joanne on Facebook at www.facebook.com/jhoekstra.rennie.
