Stress Test Changes
The Office of the Superintendent of Financial Institutions (OSFI) recently proposed a change to uninsured qualifying rate rules. Upon confirmation, effective June 1, 2021, OSFI will require uninsured mortgages, including TD Home Equity FlexLine borrowers, to qualify at the greater of:
the OSFI-defined five-year minimum qualifying rate (5.25%) or
the customer's contract rate + 2%.
Example: If the customer's rate is 2.29% + 2%, their qualifying rate would be 4.29%, however they would be qualified at the 5.25% OSFI rate which is the greater of the two.
Further updates to OSFI's proposed qualifying rate rules, if any, will be communicated as they become available.
What you need to know
The impact to the customer of this change is estimated to be up to a 4% reduction in the principal amount, depending on the customer's circumstances.
Existing pre-approvals must have a Purchase and Sale Agreement (PSA) signed before June 1, 2021 in order to not have to requalify under the new rate rules.
A signed PSA means the offer has been accepted prior to June 1, 2021. There may still be conditions to be waived or fulfilled.
For refinances, any new submissions or resubmissions with material changes received on or after June 1, 2021 will be qualified under the new qualifying rate rules.
Here's an example of how the new qualifying rate rules can impact the maximum mortgage amount a customer can qualify to borrow. The below amounts are based on a combined household income of $100,000, a five-year fixed-term mortgage rate of 2.29%, a 25-year amortization, a down payment of $100,000 and $700 in other monthly debt obligations.
Up to May 31, 2021 After June 1, 2021 Target rate 2.29% 2.29% Qualifying rate 4.79% 5.25% Maximum mortgage $403,000 $385,959 Available down payment $100,000 $100,000 Home purchase price $503,000 $ 485,959 In this example, the customer experienced a 4% decline in the total mortgage amount they qualify to borrow. A customer's maximum mortgage amount may be influenced by several factors including the term selected, variable or fixed rate, product selected, amortization, other debt obligations and credit score. Note: this example is for illustrative purposes only.