Proposed Mortgage Approval Changes

On Thursday July 6, the Office of the Superintendent of Financial Institutions, proposed that all uninsured mortgages (mortgages with a down payment of 20% or more) will have to be qualified for using the market qualifying rate (MQR) at 4.64 percent — almost two percent higher than one would be paying for in a prime rate mortgage. This stress test is typically put in place for variable, insured mortgages, to ensure that if there is a price fluctuation, the borrower will still be able to make the increased payments necessary to repay the loan. Unfortunately, using this method on fixed, relatively safe mortgages, takes nearly 20% of the borrowers buying power away from them. Ultimately, this will lead to individuals not being approved for mortgages they could realistically afford.

For example: Prior to using the MQR to calculate approval, a client was approved for a $400 000 loan, on a 5 year fixed rate of 2.94%, however, when taking the MQR of 4.64% into effect, the client is now only able to be approved for $330 000.

As you can see, this takes buying power out of the borrowers hands. Use of the MQR for conventional mortgages is projected to be implemented following summer. This is not the greatest news for those planning on waiting to purchase a home. To get the most out of your mortgage, contact us so we can discuss your options.