• On January 1, 2018, the federal government of Canada tilted the mortgage market by having the regulation of banks in financial institute, the now famous mortgage stress test. At Robert FLORIS mortgage architects office in Hamilton, we have realized that most of our clients have heard about it but truly do not understand it fully.

    To make this as simple as possible, we will use Canadian mortgage information based upon the mortgage rates as of October 2019.

    A. what is the stress test and how does it affect me?

    Most clients see the rates today as five year fixed rates for clients who are credit worthy of between 2.59% to 2.99%. Not so fast. These rates are definitely available, but only two clients who passed the stress test. The stress test means you must qualify for a mortgage at 5.19%. Since the approval rate is so high (5.19%), It drastically affects what you can afford. What is the reason for the implementation of the stress test? Depends on who you ask.

    i) The official government reason is that Canadians will be able to financially affected their mortgage if rates climb higher.

    ii) it is my belief that the stress test was put in to slow down the real estate market and take the speculation out of the Canadian housing market.

    B. How are first time homebuyers affected?

    Canadian homebuyers house expectations have dropped since they are able to afford last. On average, it is estimated that there affordability dropped by 20%.

    C. Generally how much can I afford?

    With the mortgage stress test at 5.19%, the average homebuyer can afford 4.25 times they are gross salary ***VERY IMPORTANT

    If self-employed, receive a lot of overtime, have just started a job, are on contract or have sloppy credit, please meet with a mortgage professional to receive a more accurate mortgage amount and learn the obstacles that may be directed at your particular situation.

    D. Has it affected the Canadian real estate market?

    The quick answer is yes. It has had an effect. If we look at Hamilton in terms of sales for single-family homes, it certainly has been interesting. There has been a rise in dwelling prices between $300,000-$500,000. This should not be surprising as this is where the majority of purchasers can afford and the price generally reflects what they could rent for. Has the mortgage stress test forced Canadians to think about being practical? The jury is still out but my guess is yes.

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