I apologize for so many exclamation points, but I needed to get your attention if you are sitting on the fence about whether you want to refinance your home in the near future. After three recent mortgage rule changes along with back-to-back interest rate increases with a possible third expected, there is another PROPOSED rule change which could come into affect this year that I believe will be the mother of all changes.
The Office of the Superintendent of Financial Institutions (OSFI) recently released several proposals they are considering to further tighten the mortgage rules for federally regulated lenders. OFSI is proposing lenders add 2% to the contract rate to qualify for a mortgage or line of credit.
This PROPOSED change will impact “uninsured” borrowers who want to refinance their home up to 80% of its current value. If this change is implemented, you would have to qualify for a higher mortgage rate than what has actually been negotiated between the borrower and the lender. With a possible decision in the next month or so to add another stress test to mortgage qualifications (there is already one in place for high ratio “insured” mortgages), some home owners may find they will have difficulty accessing some or all of their available equity unless they sell.
What exactly is a stress test, you ask? A stress test is a way to prepare for a worst-case scenario. With a mortgage, a stress test is a way of determining exactly how much you can afford if your income was reduced due to a job loss or some other unforeseen expense. And what if interest rates spike, would you still be able to afford your mortgage payments?
This type of planning is important as the Bank of Canada has recently increased rates due to the Canadian economy now starting to grow at a faster pace. And due to the recent increases the government benchmark rate which is used for qualifying under the stress test went from 4.64% -4.84%. Knowing that you can still afford to pay your mortgage in the case of interest rate increases can determine how you plan your finances now.
While it’s impossible to predict exactly where interest rates will be in a few years, an increase of two to three percentage points isn’t out of the question, however, ask yourself if you can afford an increase after your current term ends?
Interested in learning more about this, then contact the MortgageGirlca, Jackie Woodward. Former banker turned Mortgage Broker with over 35 years of experience. #benefitfromexperience Contact her via phone: 780-953-5737 or email: firstname.lastname@example.org. You can also follow her on Facebook, Twitter or her blog. You can also apply online securely at MortgageGirl.ca