Currently in 2017, there are two types of borrowers. Buyers whose down payment is less than 20% of the purchase price of their home are required to purchase mortgage default insurance. This insurance protects the banks if the borrower is unable to meet their obligations and defaults on the mortgage. These buyers are known as “insured borrowers”. Buyers who deposit more than 20% of the purchase price are not required to obtain the mortgage default insurance and are known as “uninsured borrowers”.

Starting on January 1st, 2018, uninsured borrowers will be required to undergo a “stress test” when obtaining their mortgage. This stress test is to determine if the borrower can afford their mortgage payments if interest rates increase during the term of the mortgage.

Borrowers will now have to qualify for their mortgage at a rate that is 2% higher than the rate offered to them by their bank, or at the 5 year average rate posted by the Bank of Canada (whichever is higher).

These changes will decrease the purchasing power of buyers by about 20%. Many buyers will look to purchase by the end of 2017 in order lock in their mortgages under the current rules and maximize their purchasing power.