New uninsured borrower rules could impact customers negatively

Published: October 30, 2017

Updated: July 24, 2018

Author: Luke Jones



On Jan.1, 2018, the government will introduce new legislation that puts more restrictions on borrowers looking for a mortgage without insurance. One realtor in Ottawa says these new rules have sent concerns through the broker, real estate, and consumer sectors.

The Office of the Superintendent of Financial Institutions (OSFI) said last month the new mortgage guidelines will require uninsured borrowers to take a “stress test”.

Under current rules, buyers putting down more than 20 per cent on the value when taking a mortgage do not have to pay for mortgage insured. These customers are called uninsured borrowers. Since last year, those putting down less the 20 per cent have had to take a stress test. The government will expand this to include those who pay more than 20 per cent of the value of a home.

The stress test aims to reassure lenders that the borrower will be able to pay back their mortgage loan if interest rates increase. Under the new rules, customers would need to prove they can afford to keep up with payments at either the five-year average rate posted by the Bank of Canada, or two percentage points higher than whatever deal they were able to negotiate. This will be decided by which measurement is higher.

"[They're] trying to ensure that consumers recognize that rates may go up in the future … and also to address more unsecured debt that consumers tend to be carrying," said Dorothy Smith, an Ottawa mortgage broker, speaking to CBC.

First-time home buyers could be particularly affected, especially those who are using monetary gifts from family to buy a property. Smith suggest customers may think about rushing to buy a property before the rule changes are implemented:

"I would never suggest anyone rush out and buy a house just for the sake of a rate increase or a policy change," Smith said.

"But it definitely is something [where] those people should be calling their broker to see if there is going to be an impact on them personally, based on what they've qualified for."