On June 1, Canada’s federal banking regulator changed the mortgage stress test rules. These changes are intended to slow down a fast-moving housing market as well as ensure that homeowners will be able to afford their mortgage payments, even in the event of an increase in interest rates.
New Rules Designed to Lower Housing Prices
The mortgage stress test was first implemented in 2018 by federal bank regulators. It became a required step in qualifying for a mortgage from a bank. In order to pass the mortgage stress test, a potential borrower must be able to prove that they will be able to afford the mortgage at a pre-determined qualifying rate.
According to Mark Goode, broker and President of Mortgage Man DLC, the government’s motivation is to encourage housing prices to decrease and to protect consumers from finding themselves in an upside-down mortgage.
“The government is fearful that you will buy a house for $1,000,000 today and then in a year it's worth $700,000 and now you've got a $900,000 mortgage on the $700,000 house. They're trying to protect us from ourselves,” he says.
Higher Qualifying Rate Means Lower Mortgage Amounts
Under the new stress test rules, the qualifying rate for uninsured mortgages will increase to 5.25%. This means that potential home buyers now qualify for lower mortgage amounts than they would have before the change. Interested borrowers may need to increase their down payment or look for a less expensive house.
“With the changes to the stress test, you will now qualify for less of a mortgage. The qualifying stress test is based income, your debts and your taxes. If you were to qualify for a $400,000 mortgage before the changes to the stress test, you are now qualifying for a $385,000 mortgage,” explains Mark.
Mortgage Brokers Can Provide Alternative Solutions
Mark and his team at Mortgage Man DLC are always looking at creative mortgage solutions to suit their clients’ unique needs. Experienced mortgage brokers like Mark have access to a wide range of lending sources.
“There are credit unions that we work with that don’t use the stress test because they don’t fall under the Bank Act,” says Mark.
Planning in Advance Can Make a Difference
Contacting a mortgage broker in advance can make a big difference and the process can be made easier with some pre-planning.
“As soon as someone starts thinking about getting a mortgage, they should contact us. We can pull their credit information and talk to them about what they qualify for. We can also give them recommendations about what they can do to increase their credit rating or how to qualify for a bigger mortgage,” recommends Mark.
Mark and his team at Mortgage Man DLC has been proudly serving the residents of Orillia since 2001. They are committed to helping their community thrive. To find out more about how they can help you with a new or current mortgage, visit them online or call them at (866) 325-8645. Mortgage Man DLC is located at 180 Memorial Avenue in Orillia.