There are some big changes to mortgage lending rules that have taken effect on January 1^st, 2018. These rule changes impact both existing mortgage holders and those seeking mortgages. Here are some key points everyone should know.

What’s the big change?

New mortgage guidelines require lenders to vet applicants with down payments of 20 percent or more by subjecting them to a stress test. Applicants must prove if they can afford their mortgage payments if interest rates were raised two percentage points.

Stress tests are already mandatory for mortgages with less than 20 percent down payment. The rules, which are meant to ensure that Canadians don’t take on too much mortgage debt, effectively reduces the size of mortgages that borrowers can get by 20 percent.

How will this impact us Canadians?

• New rules could disqualify up to 10 per cent of prospective home buyers who have down payments of 20 percent or more according to the Bank of Canada.
• There should be a cooling down of home purchases country-wide, but particularly in real estate hot spots like Toronto and Vancouver.
• Between now and the end of 2019, as many as 200,000 homeowners will fail the stress test at the time of their mortgage renewal.

Credit unions are not affected.

January’s new rules and stress tests do not apply to credit unions, which are regulated at the provincial level rather than federal level. By using a credit union in 2018, homebuyers can sidestep the stress test and get a larger mortgage.

I’m pre-approved for a mortgage in late 2017. What should I do?

Some lenders have confirmed they will grandfather existing preapprovals under the 2017 lending rules for up to 120 days. However many lenders will not – for them Jan. 1, 2018 is a hard stop on old lending rules. Some lenders have not announced their policy on the matter at all.

Your best bet is to pick up the phone and call your mortgage broker to ask them where your preapproval stands.

I already have a mortgage. How does this affect me?

Adding new money, or moving the mortgage to a new property will trigger a re-evaluation under the new rules, stress test and all. Don’t change your mortgage if you don’t have to!

Who is safe from the stress test?

You’re safe if you’re simply renewing your current balance. None of these changes will impact you if you are renewing your mortgage for the same amount with the same lender.