OSFI announces changes affecting HELOCs and reverse mortgages

The Office of the Superintendent of Financial Institutions (OSFI) is introducing stricter requirements for certain housing loans in order to protect homeowners who may be more vulnerable to interest rate hikes.

According to OSFI, the new rules affect combined loan plans, e.g. reverse mortgages or loans with shared equity features. These products became more popular over the recent years, and they can pose higher risk for lenders.

In case of borrowers with a debt of more than 65% of the loan value (i.e. have regular mortgage at 65% and Home Equity Line of Credit – HELOC for the 15% of the home value) a part of their payment must go towards the loan principal and not towards interest, until they reduce the debt below that level.

OSFI says the new rules will take effect the next time borrowers renew their plans after the end of fall 2023.

The regulator assures consumers that they will not face a hike to their monthly payment requirements. New homebuyers are also not expected to be hit by this change.

According to the central bank, combined loan plans with a higher than 65% loan-to-value rate account for $204 billion of Canada’s $1.8 trillion in total outstanding mortgages.