Don’t stress over the new mortgage “stress” test

As you probably know, the mortgage rules are changing once again, effective Jan.1, but if you’re looking to buy a home, the time to act is now.  It’s expected that many federally-regulated lenders will implement the changes before the set date, perhaps by early December.

Credit unions, on the other hand are regulated provincially. However, they too, may follow OSFI’s guidelines. Meridian, a Credit Union in Ontario for example, is reviewing the guidelines with an eye towards best practices.

What do the new rules mean for you?

 The latest revisions to the “stress” test are for uninsured mortgages or mortgages with more than a 20% down payment or 20% in existing equity.  It means that borrowers will be qualified at the greater of their contract rate + 2% or the five-year benchmark rate published by the Bank of Canada, which is currently 4.99%.

For example, a buyer looking to secure a mortgage with 20% down on a million-dollar home at 3% interest rate would have to prove they could pay up to $4,652 per month instead of the $3,786 on their contract — a difference of $866 per month.  While it does not impact your actual payment, it does have the potential to reduce the amount of mortgage you may qualify for.

What can you do?

Well the easiest thing is to do is come talk to me. Each family will be uniquely affected or unaffected by the changes. By reviewing your personal situation, we can look at various options.

There’s lots of negativity in the media around these changes, and frankly, we don’t believe this aggressive of a stress test was required. Ensuring consumers can afford what they purchased, absolutely, but this new policy may be overkill.

That said, there may be some market changes as a result, but ensuring that you are buying properties for the right reasons, with the right guidance and for your long term financial plan will ensure that you are least impacted by these changes.

What’s next?

It’s not all gloomy. Despite a slowing economy, consumers remain confident, population growth is strong, job growth has been good, and we still have relatively low interest rates.