There are some new mortgage rules that are coming into effect starting on January 1, 2018 from the Office of the Superintendent of Financial Institutions, and they go beyond the “stress testing” we’ve already heard about.

In case you didn’t hear recently, the first rule will test that anyone applying for non-insured mortgages qualify at the five-year benchmark rate published by the Bank of Canada, or the lender’s contractual rate plus 2.0%. This rule is meant to ensure that, given any fluctuations in the market, applicants can still afford their interest rate if the market changes.

Secondly, mortgage lenders will be required to enhance the Loan to Value amount, which is the value of the loan against the value of the property. Current standards dictate that the loan should be no more than 80% of the property value, but there are exceptions in cases for some borrowers. Under the new rules, these exceptions will not be allowed.

And finally, arrangements will no longer be permitted for bundling of mortgages, where two lenders split the value of the loan for borrowers. For example, where Lender A provides 65% of the mortgage total, of the allowed 80% LTV, and Lender B provides the additional 15%. This is actually a restriction that is meant to make sure borrowers can’t borrow more than the 80% LTV.

“These revisions to Guideline B-20 reinforce a strong and prudent regulatory regime for residential mortgage underwriting in Canada,” said Superintendent Jeremy Rudin.

Photo by Tiago Rodrigues.