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New Mortgage OSFI Stress Test

Last month the Office of the Superintendent of Financial Institutions (OSFI) announced a new nation-wide stress test for uninsured mortgages with deposits of 20 percent or more. Applicants will have to qualify for a minimum rate equal or greater than the five-year benchmark rate published by the Bank of Canada or their contractual mortgage rate PLUS two percentage points.

According to OSFI, this is intended to to reduce the risks associated with high household debt across the country because of “frothy housing markets” in Vancouver and Toronto.

For an average household making $150,000/year this could mean a drop in mortgage limit from $850,000 to $650,000 based on new guidelines (with 20% deposit and a new qualifying mortgage rate of 4.89 per cent).

Obviously, the government is using it as another measure to slow down the Toronto and Vancouver housing markets. The result is yet to be seen, but this new policy will definitely have a direct impact on the Toronto market.

Unfortunately, our “zero percent vacancy” rental market will be affected negatively, because new investors will have a harder time qualifying for a loan. And of course the homes over $1 million to $2 million range can expect a much softer market next spring.

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