Government Policies/
April 8th, 2019

By: Jessie Banwait

Government Policies/
April 8th, 2019

Tags: Market, Housing, Government, Policies

The Bank of Canada, which is owned by the Federal Government, helps to keep inflation low, promotes efficient banking systems, is responsible for currency, and is a fiscal agent.
The government has been implementing certain policies according to the current economy position that Canada has been facing the past years. As we know, some imbalances between the demand and supply in the housing market have been taking place in the country; Therefore, The Canadian Government, which has a big influence in the country economy and the right to implement strict policies that must be followed by all banks in Canada, is responsible for creating new policies to help recovering from current increased imbalances on Canadian economy or to prevent any other in the future.

For this reason, they created what we all know as:
 

Minimum Qualification Rate for Uninsured Mortgages

 
 

 
This New policy was given by the Canadian Government, and came into effect on January 1st, 2018. To give you a simple explanation about this rule, we need to understand that this affects those who ask for mortgages, including new buyers and people who already have a mortgage. 
For anyone who qualifies with a down payment of 20% or more (uninsured home buyers), the minimum qualifying rate is based on the bank’s normal interest plus 2% (added by the Government). On the other hand, buyers who make a down payment of less than 20%, don’t need to add the extra 2%.
Although the new mortgage rules are supposed to protect the Canadian housing industry (and make sure that Canadians are spending within their means), the changes also mean that you might have to settle for a lower budget.
 
New mortgage rules - maximum home affordability


As we can see the difference between mortgages interests in 2017 and 2018 went up due to the new policy implementation which added the 2% extra to the normal interest rates in order to qualify for a new mortgage. I found an example on BMO website that might help you understand this bar chart.
 
Let’s consider a scenario where a couple with a total pre-tax income of $120,000 has a $50,000 down payment. They estimate their total monthly property taxes and heating costs will be $475,000 with no outstanding debt. If they didn’t have to use the qualifying rate, they’d be able to purchase a property costing $720,567 if their mortgage rate was 3.39% and the mortgage amortization is 25 years. Using the qualifying rate of 5.39%, their maximum affordability declines to $597,865. That’s a difference of $122,702.

If you want more information about this new policy, here I leave 3 useful links that can help you understand:
 
The Office of the Superintendent of Financial Institutions acknowledges, is an independent agency of the Government of Canada, responsible for the supervision and regulation of banks, insurance companies, trust and loan companies, as well as private pension plans that are subject to federal oversight. 

Minimum Qualification Rate for Uninsured Mortgages
The Office of Superintendent of Financial Institutions
acknowledges, gave another policy that implies the rigorous verification of income with a high standard. 
This is important due to the fact that a trustful income is necessary in order to get the capacity to repay the mortgage loan, and avoid future problems with debt or detect fraud. 
 
The Definition of Non-Conforming Loans
OSFI has clarified the definition of non-conforming loans in the guideline as a subset of conventional mortgage loans and are broadly defined as having higher-risk attributes or deficiencies, relative to other conventional mortgages.