Last week’s OSFI Mortgage Rule Announcement has an impact, but not enormously dramatic.
The latest mortgage rule change comes with no surprise, something “rumoured” since the late Spring of this year. Whenever OSFI is “considering” anything, it’s happening. Let’s be very alert not to hit the panic button. All this change does is level the playing field between qualifying for a Variable Rate and qualifying for a Fixed Rate Mortgage. Three years ago, OSFI passed legislation that anyone choosing a 4 Year Fixed Rate or less or Variable Rate Mortgage would have to qualify at their posted rate (hovering around 5%) Starting Jan 1, 2018 ALL mortgages must qualify at that benchmark rate OR the Contract Rate they offer you + 2.00% – Most banks are around 3.49% for a 5 Year Fixed Mortgage so you’d have to qualify at 5.49% to obtain that product. This makes Variable Rate Mortgages more attractive again as the posted rate is 4.89% in comparison. It’s likely we’ll see Fixed Rates come down a bit more but still harder to qualify for those rates presently.
People ask me – IS this the sky about to fall now? No. Not even close. Many people have still been qualifying for Variable Mortgages for the past 3 years after the same rule was implemented. Who does this affect? Current applications in the que requiring qualification at a Contract Rate. If we’ve sent you in for a Refinance or a Purchase based on say the 3.14 or 3.19% 5 Year Fixed we still have available then you’re getting scaled back pretty hard. Like 20% less. If you were qualified for a $500,000 mortgage now your max would be approx. $400,000 and so on. This is not to be taken lightly if your Purchase or Refinance needs to qualify at the lower rate. My phone has been ringing off the hook this week with fence sitters that are now jumping in the direction of acting prior to December 31st. With good reason. It’s going to slow down people using the equity in their home to Refinance or our “Classic” Refinance to Purchase more property (I can’t count the number of those we’ve done over the past three years as our motivated clients have capitalized on rising rental returns and capital appreciation of real estate) – If this is something you want to or need to do, call me today. Will this affect overall prices of average homes? We think No. Maybe it will stop real estate from appreciating at 25% per year and bring it down to a modest 5-10% (modest, HA!)
In BIG news – Amazon HQ2 could be moving HQ to Vancouver. This is MASSIVE. Other tech companies have been expanding and hiring here and in the Okanagan rapidly. Amazon alone will be bringing 50,000 jobs (and families, and business, and growth, and and….) to our picturesque city. Major business growth in the tech and medical sectors are why believe we will see a continued rise in real estate prices. We still think any property sub $2,000,000 in Vancouver and $1,500,000 in the burbs will remain a very hot commodity. I can’t remember who I was chatting with that “never thought they’d see a $1,000,000 1 Bedroom condo in San Fran” and guess what, it’s happened. $2000/sqft downtown Vancouver is something we’ll see in our lifetime, for sure. (I’ve got a good 70 more years to go pending scientific advancements, lol)
OK so if I’m the Bank and I see that the Bank of Canada just raised Variable rates by 0.50% in consecutive decisions ummm yea I’m going to raise Fixed Rates arbitrarily!! Panic stricken people all over the country have undoubtedly been herded in to the Fixed Rate corrals. The bond yields have not risen enough to warrant the increase from 2.69% 5-year Fixed Money two ish months ago to 3.49% 5-year Fixed on average right now. One thing I always like to point out this time of year is that Banks fiscal year end is Oct 31st. Every year for the past four years as we’ve had banner real estate growth Banks will chuck up their rates really high because they’ve already smashed their targets and hit bonuses. They start discounting rates again in the early Spring to meet the real estate market and compete for the mortgage biz. Mortgages for banks are typically their loss leader products necessary to obtain much more profitable 19% credit cards and banking fees.
Bank of Canada’s next announcement is next Wednesday. Again, if I’m putting my psychology hat on, I’m thinking they purposefully raised Variable Rates twice in July and September to avoid raising in October, they wanted two raises in 2017. Reason being is consumer confidence would be hammered heading in to Christmas season and the Government still needs people to spend spend spend. We’re not anticipating another increase to Variable until the New Year after this latest round of OSFI Mortgage Rule Belt Tightening plays out.
I still like my Variable Rate Mortgage. It’s lower than a Fixed Rate and gives me a lot of flexibility. Technically it’s now easier to qualify to obtain a Variable. For those who NEED to qualify at a Contract Fixed Rate in to 2018 my firm has excellent relationships with Credit Unions who do not fall under OSFI rules. They will still be able to use the old criteria. We’ve been strengthening our relationships with many CU’s all year for this reason and because a few have some awesome products to boot!
For more information or specific questions please reach out direct via email or phone above.
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