New Year - New Stress Tests Affects Your Buying Power - Penny Brown

Penny Brown

New Year - New Stress Tests Affects Your Buying Power

  • Penny Brown
  • 26 October 2017

Recently there has been a lot of discussion about the new rules the government is implementing with regard to mortgage rules. For some of you there will be little effect but in the larger picture the market will be affected and as a result it is important to understand what is going on and how one should react.

I am quoting from several articles I have seen and thought gave pertinent points to the situation.

“When the new rules kick in, everyone applying for a mortgage will have to prove that they can afford the monthly costs of a 4.89% mortgage – regardless of the rate they are offered and would pay if they are successful.

For example, a couple want to lock in a 2.75% variable rate mortgage. They will have to prove they can afford 4.89%.

There’s more.

The stress test rate for uninsured mortgages with 20% down payment is either 4.89% or the offered mortgage rate plus 2%, whichever is higher.

Let’s assume that same couple is now being offered a 2.95% rate. They must now prove they can afford a 4.95% monthly payment (2.95%+2%)

Finally, the stress test will apply to new mortgage loans and mortgages that are refinanced or renewed with a different financial institution. If you’re chasing a lower rate in a few years, you might need to pass the stress test to get it.

The stress test will not apply if you’re renewing with the same financial institution.”

We might see a number of moves these stress tests might cause. “We might see the people who cannot afford mortgage carrying costs for a freehold purchase shift to the condo market, where they can afford the carrying costs. Or, they will seek out alternative lending opportunities from mortgage finance institutions, but the OFSI has made it clear that they are expecting greater fiscal responsibility from all lenders.”

In case you are wondering, the OFSI is The Office of the Superintendent of Financial Institutions (OSFI). It is an independent agency of the Government of Canada, established in 1987 to contribute to the safety and soundness of the Canadian financial system. OSFI supervises and regulates federally registered banks and insurers, trust and loan companies, as well as private pension plans subject to federal oversight.

“If you’re a condo owner looking to jump to freehold, now might be the time. You’re selling into a hot condo resale market and buying into a down freehold market. Plus, you’ll beat the stress test and lock in at a low rate. Even if you stretch to get that house, your future renewal would not be stress tested if you stay with the same financial institution.

Or

The stress test hits, prices drop for freeholds because they are costly, but the affordable condo market sees little change. That same condo seller / freehold buyer might see prices drop another 100k and still get in before the BoC bumps rates up again, assuming they have a big deposit.”

All of the above quoted from condos.ca makes one realize that the market still has lots of going on that requires close attention.

Whether your situation is about down-sizing, or moving up to a new situation I am here to provide my expertise and assistance to ensure the financial advice your require with regard to your real estate assets is the best it can be.

If I can be of assistance please call.

Best regards,
Penny