More change is coming for Canadians looking to get home financing. Proposed updates to the current mortgage stress test for applicants to get approval are kicking in June 1st. These changes are intended to defuse some of the unsustainable growth we’ve seen in the housing market over the past 18 months.
Changes for All Borrowers
While the original proposal for mortgage stress test increases only applied to uninsured mortgages, both insured and uninsured borrowers will be subject to the new rules. As it stands now, anyone looking to get home financing will be subject to a stress test at either the contract rate + 2% or a floor rate of 5.25% — whichever amount is higher at the time of application.
This means regardless of down payment size; buyers will need to prove that they can accommodate payments at a minimum interest rate of 5.25%. Ultimately, this will reduce the overall purchase price that any given individual or family can get approval for.
A Hurdle for First-Time Homebuyers
It is no surprise that the government is looking to cool down a housing market that teeters on instability, however, the new mortgage stress test has one major downfall — it penalizes the most vulnerable in the housing market. First-time homebuyers along with those looking to get home financing after separation will have limited buying power under this new arrangement.
It is estimated that up to 20% of the buying market will be directly impacted by these new changes, versus just 5% of borrowers that would have been affected by mortgage stress test increases to uninsured applicants only.
With a goal of keeping homeownership within the reach of more Canadians by decreasing some of the buying competition, it seems that the government may have inadvertently disqualified many new buyers looking to enter the market — especially in hotspot metropolitan locations across the country.
For anyone looking to get a mortgage, planning your financing around payments at or above 5.25% is now a must. Interest rates have never been lower and up is the only way to go from here. To ensure that your home stays within your budget as these increases begin, it may be advantageous to shop for properties in the middle or lower end of your overall price range as opposed to those at the top.
Doing this will give you a better chance of passing the new stress test — plus it will give you more financial room should your mortgage interest rate increase substantially over the amortization of the agreement.
Buy Your Next Home with Confidence
Is now the time for you or your family? Purchasing a home in a hot housing market can be intimidating. Take some of the pressure off by enlisting the help of a mortgage expert. Gerard of GerardBuckley.ca a Mortgage Broker along with his team offers an unmatched dedication to the client experience, treating every mortgage deal with care.
Have questions about the new changes? Give Gerard a call today at 866-496-4028.
Want to prepare yourself for your next purchase? Become prequalified online now.