Should you stress about the stress test?
What you should know about new mortgage rules.
In October, our Finance Minister announced that new mortgage rules will include more stringent “stress testing” for borrowers. The new rules are designed to lower debt levels, enforce some belt-tightening, and protect the housing market over the long term. Here’s how these new rules will affect us:
THE HIGH-RATIO RULE
There has been a long-time rule that you must have “high-ratio mortgage insurance” if you have less than 20% down payment. This insurance is there to protect the lender, and the premium is almost always added to your mortgage amount.
What’s changed? If you require an insured mortgage, you must qualify for your mortgage using the Bank of Canada qualifying rate (currently 4.64%) regardless of what your actual mortgage rate will be.
That means that – although you may find a much better mortgage rate – you’d still need to show you can handle the mortgage using the qualifying rate. This financial “stress test” was already applicable for fixed and variable mortgages with terms of 1 to 4 years. Now, it also applies to fixed-rate mortgages of 5 years or longer.
Why the new rule?
The government wants to be sure that borrowers can withstand any increases in mortgage rates when their mortgages come up for renewal.
Will my payments be higher?
No. Your payments will still be based on your much lower actual mortgage contract rate. Keep in mind that mortgage rates are expected to stay at record lows into 2020. So this new rule isn’t costing you more. The potential change will be in how much mortgage you will qualify for: up to 20% less. You may need to plan on purchasing a less expensive home, or save up a larger down payment, or ensure you eliminate all or most of your other debts.
Please consult a qualified Mortgage Specialist at your Bank or a Mortgage Broker to see how to qualify for your real estate purchase.