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How OSFI’s new mortgage rules will affect home affordability

It's about to become tougher to qualify for a mortgage.

Canada's banking regulator published final guidelines for its mortgage qualification rule on Tuesday, which impose tighter standards on the uninsured market. Lenders will soon be required to "stress test" all uninsured mortgage loans – those where the buyer makes a down payment of at least 20 per cent of the home's purchase price – at the greater of the Bank of Canada's five-year posted rate or 200 basis points (two percentage points) higher than the negotiated contract rate.

Home affordability will undoubtedly change as a result of the changes, according to calculations from RateHub.ca. The rate-comparison website looked at the maximum price a buyer could afford, under two scenarios, and compared current rules with incoming ones.

The buyer is a family with an annual income of $100,000, enough cash saved for a 20-per-cent down payment, and a five-year fixed mortgage amortized over 25 years.

For Scenario No. 1, the family's mortgage rate is 2.83 per cent. Under incoming rules, the mortgage application faces a stress test using the Bank of Canada's current five-year benchmark rate of 4.89 per cent. That's because the central bank's posted rate is higher than the family's negotiated rate plus 200 basis points (4.83 per cent).

For Scenario No. 2, the family's mortgage rate is 3.09 per cent. Under incoming rules, the family would be stress tested at 5.09 per cent. That's because the negotiated rate plus 200 basis points (5.09 per cent) is higher than the BoC's posted rate (4.89 per cent).

Either way you cut it, the family's purchasing power will decrease when the new rules come into effect on Jan. 1, 2018.

Maximum home price the family could

afford

Under current rules

Under incoming rules

$800,000

$726,939

$706,692

600,000

$570,970

$559,896

400,000

200,000

0

Scenario No. 1

Scenario No. 2

THE GLOBE AND MAIL, SOURCE: RATEHUB.CA

Maximum home price the family could afford

Under current rules

Under incoming rules

$800,000

$726,939

$706,692

600,000

$570,970

$559,896

400,000

200,000

0

Scenario No. 1

Scenario No. 2

THE GLOBE AND MAIL, SOURCE: RATEHUB.CA

Maximum home price the family could afford

Under current rules

Under incoming rules

$800,000

$726,939

$706,692

600,000

$570,970

$559,896

400,000

200,000

0

Scenario No. 1

Scenario No. 2

THE GLOBE AND MAIL, SOURCE: RATEHUB.CA

Note: As part of its calculations, RateHub assumes monthly property taxes of $400 and monthly heating costs of $150. Calculations are based on a gross debt service (GDS) ratio limit of 39 per cent, which is the maximum allowed by the federal government. The GDS ratio is the percentage of pretax monthly household income needed to pay monthly housing costs, which include principal, interest, taxes, heating and half of condo fees. These examples do not take monthly condo fees into account, which would reduce affordability. Nor do they assume any other debt obligations a home buyer may have.

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