Why mortgages have become harder to be approved for

How it affects home buyers and realtors

As I sat back on my desk this past Wednesday, TD Bank had sent me their recent mortgage rate update. The new five year fixed rate was up to 3.75% [all the banks had their mortgage rates go up].

I started to reflect at just how quickly rates had escalated. It was almost one year ago a five year fixed rate was almost 2% less. Suddenly, it occurred to me this was worse than I imagined. Why?

The Canadian government stress test clearly states:

The lender will apply the stress test [currently at 5.25%] or the current mortgage rate +2%.

Therefore, if a client wants a five year fixed rate, they must be approved at 5.75%.

Therefore, affordability just became reduced.

Here’s an example:

$500,000 mortgage over 25 years

Stress test at 5.25% = principal and interest payments of $2979.59

Stress test at 5.75% = principal and interest payments of $3125.11

This equates to reduced affordability of 4.88%.

In conclusion, whether you’re a homeowner who has been preapproved months ago or a realtor who has potential buyers, ensure your clients have been preapproved correctly.