Effective April 6, the federal government will once again change how it calculates qualifying rates for mortgages (widely known as the mortgage “stress test”) that is intended to give Canadians more home buying power.
Under the current mortgage rules, a borrower must have their financial capability tested at the 5.19% rate, or be refused a loan.
But under the new rules, a borrower would be tested at 4.89 per cent — a combination of their actual mortgage rate, plus two per cent. That’s a difference of 30 basis points and though small it can add up to thousands more in purchasing power.CBC News
The website Ratehub.ca reckons that a buyer with an annual income of $100,000, a 10 per cent down payment, and a 2.89 per cent mortgage rate could now buy a home valued at $526,632 — that’s more than $15,000 more purchasing power than under the current rules.
The intent of the federally regulated stress test rate for mortgages was to lessen the risk that borrowers won’t be able to pay their mortgage if the economy tanks or for whatever reason they lose income. However, it has been based on the big bank mortgage rates, not smaller lenders such as credit unions which some said was unfair to consumers.
“REALTORS® have advocated for changes to the stress test on behalf of potential homeowners who have been sidelined, borrowers who have moved away from the regulated market to less-regulated options, and real estate markets across the country in need of relief,” said Jason Stephen, President of The Canadian Real Estate Association.
In response to the impacts of the stress test, CREA has recommended:
- reviewing the mortgage stress test to ensure the realities of local real estate markets are taken into consideration; and
- allowing existing mortgage holders to be exempted from the stress test at the time of renewal.
“We are pleased the government has taken steps to address some of these issues in Canadian housing markets,” said Stephen.