Recent Changes To The STRESS TEST!
Updated: May 5, 2020
So, you've probably heard by NOW the Government has proposed a NEW stress test to be implemented for borrowers who are purchasing a property with less than 20% for a downpayment (not only first-time buyers).
First, What's a Stress Test?
Implemented first in 2016, the stress test was put in place for those buying a home to reduce the potential impact of a possible rate increase, it worked as follows:
Lenders must use the mortgage payment based on the "qualifying rate" which was in correlation to the big 5 banks POSTED rate (not real rate) - today this rate is 5.19%
Even though this interest rate is on average over 2% above the daily rate, we use this as it is set by the bank of Canada to find the PAYMENT which a lender will use to qualify a mortgage.
What Changes are being implemented to the Stress Test?
The government is proposing a new stress test as follows:
The MEDIAN interest rate + 2%
(How this is confirmed by the government has yet to be decided!!)
What does this MEAN!?
Let's assume a family has an income of $100,000
A Townhouse or Condo with Property taxes of $2000 + Strata Fees of $250
Today's Benchmark Rate of 5.19% :
Maximum Mortgage Qualification (estimate) - $460,000
The proposed Benchmark Rate (Median +2%) Let's assume 4.89%:
Maximum Mortgage Qualification (estimate) - $475,000
The Difference = $15,000 of additional qualification
VERDICT - 👍 👎
👍This is generally good news for already squeezed buyers, it takes a more common-sense approach to define the stress test and puts LESS focus on the BIG BANKS deciding these numbers (an already questionable tactic).
👎We still don't know WHO decides the median rate, how it will be set weekly and what it is based off. Also, this will make it MORE challenging for pre-approved clients when house hunting as the changing rates can increase or decrease their budget.
WHAT DO YOU THINK!?!?
We are here to help! text / dm / email!
Direct Line > 604-398-5575
Alex 📲 604-619-3319
Deryk 📲 604-763-8928
REMEMBER we will ALWAYS give your client a second opinion at no charge to give you confidence (even after approval) and happily send them back to the bank if they prefer (almost never happens).
Any other questions? Feel free to reply and we'll respond at our earliest opportunity!
When You or someone you know is considering a move, paying out debt, switching lenders or just have any general mortgage questions make sure to CONTACT US right away! We're NEVER too busy to support your wealth journey 😊
If someone is pre-approved and we see interest rates changing throughout the term, this could affect their pre-approval. That's where a good team like THRIVE Mortgage comes along!
If you have any questions about the stress test or anything at all contact us! We're here to help.