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1 Jun

Policy Update for New Minimum Qualifying Rate

General

Posted by: Kimberly and Cindy Walker

As announced by the Office of the Superintendent of Financial Institutions (OSFI) and the Department of Finance, a new minimum qualifying rate will be used for all mortgages, effective June 1, 2021.  The revised calculation of the minimum qualifying rate for both insured and conventional mortgages will be the greater of the contract rate plus 2% or 5.25%.  This new “Minimum Qualifying Rate” is subject to review and periodic adjustment as described on the OSFI website as:

“OSFI will review and communicate the qualifying rate at a minimum annually, every December, well in advance of the high-volume housing spring season. OSFI will make a decision based on data from its ongoing monitoring of FRFIs and analytical work on system-wide and sectoral developments. As well, OSFI will consult its federal financial regulatory partners, notably the Department of Finance Canada and the Bank of Canada.”

What does this mean?

  • All deals submitted prior to June 1, 2021 will be qualified using the current 5 year benchmark rate criteria (current qualifying rate).
  • All new mortgage applications submitted on June 1, 2021 or later are subject to the new minimum qualifying rate criteria (with exceptions as noted below under insured mortgage applications).
  • Applications that were committed prior to June 1, 2021 do not have to be requalified using the new qualifying rate unless material changes have been made to the application.  These changes would be either a change in the property to be financed or a change to the borrowers, or both.
  • Commitments that have been issued for closings greater than 120 days would be re-qualified using the new minimum qualifying rate once the closing is within 120 days.

Please note there will be a significant difference between insured deals and conventional deals with respect to pre approvals and “grandfathering” of the old benchmark rate for qualification as follows:

Conventional Mortgage Applications:

  • Effective June 1, 2021 all conventional application submissions will be qualified using the new minimum qualifying rate.
  • Applications approved before June 1, 2021 using the current 5 year benchmark rate criteria must close within the original commitment expiry date OR be re-qualified using the new minimum qualifying rate.
  • Pre approvals that were committed before June 1, 2021 and become a “live deal” on or after June 1st will be underwritten using the new minimum qualifying rate.
  • Purchase applications with a signed Purchase Agreement dated before June 1st but submitted to First National on or after June 1st will be underwritten using the new minimum qualifying rate.

Insured Mortgage Applications:

  • Effective June 1, 2021 all insured application submissions will be qualified using the new minimum qualifying rate.
  • Existing insured pre approvals that were committed before June 1, 2021 and become a “live deal” on or after June 1st will be underwritten using the current 5 year benchmark rate as long as the closing date is within the expiry date of the existing pre approval.
  • Existing pre approval is defined as a pre approval that was submitted to First National prior to May 28, 2021.  Pre approvals committed after May 28, 2021 will be subject to the new minimum qualifying rate if it becomes a live deal after June 1, 2021.
  • Insured purchase applications with a signed Purchase Agreement dated before June 1st but submitted to First National on or after June 1st will be underwritten using the current 5 year benchmark rate, as long the deal closes by September 30, 2021.