Last week OFSI (the Office of the Superintendent of Financial Institutions) just released the latest in a string of guidelines over the last couple of years, which are targeted to keep Canadians from taking on more debt than perhaps they can handle, and consequently attempting to cool overheated housing markets. The new revised mortgage underwriting requirements are to come into effect January 1, 2018. Several key changes involve:
• Stress test – the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
• Enhanced LTV (loan-to-value) measurement – federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and are updated as housing markets and the economic environment evolve.
• Restriction of certain lending arrangements – federally regulated financial institutions will be prohibited from arranging with another lender a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.
What does this all mean? In short, it has become harder once again to borrow conventionally at your bank in Canada. For those on a fixed income, it means that the amount you are eligible to borrow will likely drop about 10%. If you are wanting to refinance your home, or take out a secured line of credit, the maximum amount you are eligible to borrow has dropped.
However, these changes do not affect the reverse mortgage products. It may be that the reverse mortgage is now the ideal solution for you if you are over 55 and own your own home. Not needing to worry about whether you income or credit qualify, you may be able to borrow what you need and not make the monthly mortgage payments until the home is eventually sold. Or, if you would rather not have the interest accumulate over time, you can make the interest payments and certain principal repayments without any penalty, thus keeping the borrowed amount the same or even paying it down over time
There is more flexibility in the Canadian reverse mortgage products than there ever has been. As a senior, you may want to review your reverse mortgage options before borrowing against your home. I would be happy to discuss these with you and welcome your questions.