Applying for a new mortgage won’t be so easy after today’s announcement by Federal Finance Minister Bill Morneau. That’s because anyone looking to buy a home will have to qualify for that new mortgage based on posted rates, not discounted rates.

As MoneySense reported in June, up until now, homebuyers could skirt the rules if they opted for a five-year fixed rate. Rather than qualifying for the higher, posted rate, these buyers could qualify for the loan based on the much lower discounted rates, explained Calum Ross, a Toronto-based independent mortgage broker, who works with high net worth clients as a dually licensed wealth advisor (with his MBA) and mortgage broker.

How this loophole helped homebuyers

Under current Canadian mortgage qualification rules, home buyers can only get a mortgage if their debt-ratios show that they can make payments based on the Bank of Canada’s qualifying rate. This mortgage qualifying rate (MQR) is based on the posted five-year fixed rate and in 2015, it hovered around 4.65%.

However, until the Federal Minister made his announcement today, anyone opting for a five-year fixed didn’t have to use the 4.65% rate, but rather the much lower contract rate. In 2015, this contract rate bounced between 1.99% and 2.99%.

Thing is, the contract rate is the equivalent of a discount rate—and, at present, about 200 basis points below the stress-test mortgage qualifying rate.

“This is a big problem,” explained Ross, earlier this year. “By qualifying a buyer at the higher, posted rate we protect the downside risk, the impact higher mortgage rates will have on a homeowner’s budget. In essence, these regulations stress-test whether or not a buyer can withstand a 1% to 2% increase in mortgage rates.”

Ross added: “Up until now, changes to mortgage regulations have focused on down payment minimums, but I fundamentally believe that where we really need intervention is in how we qualify borrowers,” says Ross. He believes the regulations need to be further amended so that all borrowers would qualify based on posted rates. “It’s irresponsible to simply ignore this.”