The Globe and Mail reports in its Saturday edition that home buyers will see their purchasing power shrink slightly under Canada's new mortgage stress test, but experts caution the stricter rule will have little effect on runaway home prices.
The Globe's Rachelle Younglai writes that the Office of the Superintendent of Financial Institutions (OSFI) plan for uninsured mortgages, announced Thursday, would effectively require borrowers to prove they can make their mortgage payments at an interest rate of 5.25 per cent, up from 4.79 per cent.
The bank regulator believes the proposed change would reduce the maximum mortgage a borrower could take on by 2 per cent to 4 per cent, if the loan's amortization period remains the same. The change applies to borrowers who are not required to buy mortgage insurance because they have a down payment of 20 per cent or more of the purchase price.
For example, a Bank of Montreal calculation estimates that the new stress test would shrink a $1-million mortgage approval to $955,000.
"Actual borrowing rates that consumers see are not moving, therefore the tone and psychology of the market might not change all that much," said Douglas Porter, chief economist with BMO.
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