New Mortgage Rules Means Stress Tests For Canadians
In the last 10 years, mortgage rules have been tightened approximately six times. If you thought a seventh time wasn’t coming, prepare for an unfortunate surprise. Currently, borrowers with as much as a 20% down payment (and in some cases, even more) will now have to face a ‘stress test.’ It’s a practice that has been done since 2017 for borrowers with small down payments, but this year is the first time such tests are impacting such a sizeable group of Canadians (roughly 100,000).
How does this impact me?
It depends. If your mortgage must undertake the scrutiny of a stress test, this means financial institutions must check your home mortgage application via a minimum qualifying rate that is equal to Bank of Canada’s five-year benchmark rate or the bank’s contractual rate with an added sum of two percentage points. This could have a huge impact on lower income homebuyers at a time in which purchasing single family homes are hard enough as it is.
What can you do?
Put down a higher down payment – easier said than done, but it’s one of the only options homebuyers have to deal with the stress test. Alternatively, homebuyers can also keep their eyes open for less expensive homes – up to 20% less than what you’re eyeballing at the moment. It sounds like two decent options on paper, but for homebuyers that have been saving for years only to learn they’re severely lacking a proper down payment, it’s rough news to hear. The same goes for homebuyers that have to forget about buying that dream home they’re excited about. Buying a home 20% under what you’re looking at sounds logical, but could seriously limit your
buying options – either way, there are obvious downsides for the 100,00 homebuyers (or more) this will affect.
Am I exempt?
If you signed a purchase agreement before January 1, 2018 then a lender will not have to utilize the stress test for your mortgage. However, since we’re so far into 2018 this will likely apply to only homebuyers that signed on the agreement before construction began on their new home. For everyone else that fails the stress test with another lender, there is no other option: either have a higher down payment beyond 20% (your lender will give you an exact percentage) or find a home 20% below the home you’re looking at.
Do I have another option?
Notice how we’ve stated that you must undergo a stress test if failed with other lenders. There’s a reason for this: here at Dunpar Homes, we do not require applicants to do any kind of stress test whatsoever. We have our own financing program here, and we understand the value of providing competitive rates for potential homebuyers of all incomes which is why our rates range from 1.99 – 2.49%. Can’t make a 20% downpayment? Our team can actually charge on the equity of your home to reserve that new townhome you’ve had your eye on. Don’t wait, explore your options with our staff of experts! From the lower income ratio to the highest, if you already know what you can afford to live comfortably after paying your mortgage monthly then you deserve a team that can help turns that dream of being a homeowner into a reality. Contact us today, and let us prove what we can do for you
