February 21 2020
On Tuesday, the Federal Government announced that they are going to be easing the rules of the Office of the Superintendent (OFSI) mortgage stress test as of April 6, 2020. The current mortgage stress test, which was introduced in January 2018, has made it a lot harder for Canadians – especially first-time home buyers – to either get a mortgage and/or refinance an existing mortgage. The new rules, however, will make the stress test slightly easier for buyers to qualify for an insured mortgage and increase their overall housing affordability.
These changes will affect individuals getting insured mortgages – these are mortgages made with down payments of less than 20% and require default insurance from the Canadian Mortgage and Housing Corporation. However, there is some buzz that the OFSI is considering applying these rules to other levels of mortgages (i.e. uninsured) as well.
The current stress test measures a borrower’s ability to qualify for a mortgage based on comparing salary and/or income ratios with the greater of the five-year rate set by the Bank of Canada (5.19%) or the rate a client receives from a lender, plus 2%. The Bank of Canada rate is an average of the posted rates from the big six banks and is usually 2% higher than the average five-year fixed insured mortgage rate. With the current stress test, clients are generally tested against the Bank of Canada number.
Under the new stress test rules, this rate will change to a weekly median five-year fixed insured mortgage rate from mortgage insurance applications, plus 2%. The new rate will be lower and now reflect average mortgage rates from all lenders, which will make the stress test more lenient and enable home buyers to afford larger mortgages.
The more lenient guidelines will set the goal of increasing the affordability of home buyers. This will make the process of getting approved for a mortgage a little easier, increase how much buyers can borrow and hopefully make Canadian housing more affordable than it is today. These changes seem to be targeted toward first-time home buyers, given that they typically make down payments of less than 20%. By easing the requirements to qualify for a mortgage, these new rules will help more first-time buyers enter the housing market.
With the new rules coming into place just in time for spring, this could be great news for both buyers and sellers. With more people able to qualify for larger mortgages and therefore in the market to purchase, this could spark activity in Canada’s housing market by motivating more people to sell their homes, increasing the overall supply for buyers.
Want to know how much you can afford with the new “stress test” guidelines? Simply apply online with us today and one of our Mortgage Advisors will get in touch to give you a view of your affordability, provide mortgage options and answer any questions you may have.
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