2018 isn’t the only thing that will roll in after December 31. As of January 1, 2018 Canada will be subject to some new mortgage rules. These rules will set a new minimum qualifying rate or a “stress test” for both insured and conventional mortgages. Previously, this stress test only applied to those who had less than a 20% down payment, come the new year it will apply to all borrowers, investors and in some cases even refinances.

OSFI (Office of the Superintendent of Financial Institutions) is implementing the changes because of its concern with high household debts, rising interest rates and elevated property values.

What does this mean for you, the borrower? It means regardless of how much money you have as a down payment, you will have to pass a stress test. The new rules will require the minimum qualifying rate for mortgages to either be higher than the five year Bank of Canada Benchmark rate (currently 4.89) or 2% higher than the mortgage holder’s contractual mortgage rate, whichever is higher. It means, buyers will qualify for less financing come January 1, 2018

Under the New rules a CMHC insured mortgage (a mortgage where the borrower has less than 20% down) will require the borrower to qualify at the Bank of Canada’s current benchmark (currently 4.89%)

In the case of a conventional or non-insured mortgage the borrower will have to qualify at 200 points above their contractual rate. For example if their mortgage rate is 3.29% they will have to qualify at 5.29%.

(Note, your payments would be at the contractual rate you’ll just be qualified at the higher rate)

This translates into a huge difference in the amount a borrower will qualify for come the New Year. A borrower who would currently qualify for a $725,000 mortgage this year will find themselves qualifying for much less, somewhere around $572,000 as of January 1, 2018. This is upwards of 21% less.

Anyone renewing their existing mortgage with the same lender will not be required to meet the new guidelines however; renewals done where the borrower is changing lenders fall under the new mortgage rules, as they will require new underwriting.

Many critics find this a very aggressive move in wake of recent interest rate hikes and anticipate that the already softening market will be negatively impacted and that these very moves could in fact end up having an adverse effect should people decide to search out private lending options which, are not regulated in the same manner.

In summary with the new mortgage rules, you will need more money down to buy a home, an investment property or in some cases, to do a refinance. As a first time home buyer looking to break into the market after January 1st, 2018 this could translate into requiring a co-signer or remaining a tenant for a while longer.