New mortgage rules
You're referring to the new mortgage rules that have been implemented in recent years to improve the stability and safety of the mortgage market. Here are some key changes:
1. Stress Testing (2017): The Office of the Superintendent of Financial Institutions (OSFI) introduced stress testing for insured mortgages, which requires lenders to test borrowers' ability to make mortgage payments at a higher interest rate (currently 5.25%) to ensure they can afford their mortgage even if interest rates rise.
2. Mortgage Qualification Rules (2018): The Canadian government introduced new mortgage qualification rules, which require lenders to use the Bank of Canada's five-year benchmark rate (currently 5.19%) to determine a borrower's mortgage affordability, in addition to the stress test.
3. Insured Mortgage Limits (2019): The Canada Mortgage and Housing Corporation (CMHC) increased the maximum amount that can be insured for a mortgage from 80% to 85% of the home's value.
4. Interest Rate Risk (2020): The OSFI introduced new guidelines to address interest rate risk, which requires lenders to assess the potential impact of rising interest rates on their mortgage portfolios.
5. Mortgage Insurance Premiums (2020): The CMHC increased mortgage insurance premiums for high-ratio mortgages (those with a down payment of less than 20%) to help offset the cost of insuring these mortgages.
Key Takeaways:
- Borrowers must now qualify for a mortgage at a higher interest rate than the actual rate they're offered.
- Lenders must assess a borrower's ability to make mortgage payments at a higher interest rate.
- The maximum amount that can be insured for a mortgage has increased to 85%.
- Mortgage insurance premiums have increased for high-ratio mortgages.
These changes are designed to promote responsible lending and borrowing practices, reduce the risk of mortgage defaults, and maintain the stability of the Canadian mortgage market.