Stress Test Reduction: Qualifying For A Mortgage Will Become Easier

Stress Test Reduction: Qualifying For A Mortgage Will Become Easier

In case any of you are not familiar with the stress test, this is the artificially inflated rate that mortgagors need to prove they can afford, in order to qualify for a mortgage. Currently this rate is sitting at 5.19%. In other words, currently, without the stress test reduction prospective homebuyers need to prove that they have sufficient income to afford a rate of 5.19% (which is relatively high). In comparison, the ACTUAL rate that homeowners can get are as low as 2.79% (or even less) currently, depending on the circumstances. This low rate applies to insured mortgages (where the homebuyer is putting less than 20% down).

The proposed change as of April 6: the new qualification rate will be the insured rate (~2.79%) + 2% = 4.79%. Compared to 5.19%, it’s not a huge decrease but we are moving in the right direction!

This is a good move to help prospective homebuyers qualify.

Why did the Government of Canada introduce the stress test in the first place? It’s because they were concerned with record low mortgage rates, that if the rates went up, homeowners would not be able to afford the higher payments. However, considering that rates usually increase a quarter of a percent at most a few times a year, 2% is still a bigger buffer than we would like to see.

I hope you find this information helpful. If you have any questions, please don’t hesitate to ask.

Sean Howard is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Sean, he can be reached at 905-574-9200 #216. Alternatively, you can contact Sean here.

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