• 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.

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