Loopholes open and close in new mortgage rules

November 4, 2017

Mortgage brokers note that an apparent loophole has opened in the new federal mortgage regulations that come into effect January 1, but another potential loophole appears to be closing.
The brokers said the new Office of the Superintendent of Financial Institution (OFSI) mortgage guidelines, while requiring all homebuyers to qualify at lending rates 2 per cent higher than what is available, is not as specific about the length of the amortization.
According to OFSI documents on the mortgage changes, “OSFI expects the average amortization period for mortgages underwritten to be less than the federally-regulated financial institution stated maximum, as articulated in its Residential Mortgage Underwriting Policy.” However, it continues, “The percentage of residential mortgages that fall within various amortization period ranges [are] significant e.g. 20-24 years, 25-29 years, 30-34 years, 35 years and greater.”
Brokers explain that a longer amortization period, say 35 years rather than 25 years, would reduce the monthly mortgage amount. This could allow some marginal buyers to buy, even at the mandated higher rate for qualifying.
However, when the OFSI plan was announced, many brokers had pointed out that credit unions are not federally regulated and could therefore provide mortgages exempt from the OFSI rules.  But most provincially-regulated credit unions have now gone on record saying they would follow the new federal mortgage qualification guidelines.