• Alvi Campos - Residential Real Estate

How Will Changes To The Stress Test Impact Buyers?

One of the biggest news in the Canadian residential real estate market is the changes in mortgage stress tests. As housing markets throughout the country continue to transact at record-high levels, regulators have become concerned with soaring house prices and have determined that a change in mortgage eligibility may help alleviate soaring house prices. Curious as to how these changes would impact buyers, I reached out to a mortgage expert to learn more.

Below are some insights I received from Ron Quaroni, a mortgage associate with iSask Mortgage Brokers.

Folks have a lot of questions when it comes to rule changes around their mortgages and some of them can be hard to understand. So let’s start at the beginning.

What is the mortgage stress test?

The stress test qualifies potential borrowers not on today’s interest rates but potential future interest rates. This ensures that borrowers who can afford their mortgage today can afford it in the future as well. The current stress test qualifying rate is 4.79% or your current interest rate plus 2%, whichever amount is greater. (ie. (2.04+2%) or (4.79%))

Under the current stress test rate, a family with a household income of $100,000, no debts and good credit could qualify for a maximum mortgage amount of around $501,718.

What is being proposed?

Here’s an excerpt from Steve Huebl, a reporter for Canadian Mortgage Trends.

“The Office of the Superintendent of Financial Institutions (OSFI) unveiled its proposed changes... which would require borrowers applying for uninsured mortgages—typically those with more than a 20% down payment—to qualify at their mortgage contract rate plus two percentage points or 5.25%, whichever is higher.” Huebl wrote.

OSFI is waiting till May 7, 2021, to finalize its decision. The proposed changes would come into effect on June 1, 2021.

With these changes in mind and using our above example (assuming they were putting 20% down), our family making $100,000 would now have a maximum mortgage ceiling of $479,652. A loss of $22,066 (4.4%) in purchasing power.

What are the consequences?

Borrowers who need or would like to put 20% down on their future homes will have a reduction of their buying power by approximately 4.5%.

For now, this policy change is not affecting buyers who are putting less than 20% down. (ie. 5,10 and 15%)

Will this slight increase affect home prices in Canada and Saskatchewan. Nationally maybe, in Saskatchewan, I don’t think so. As much as low rates are influencing buyers to enter the market, I believe current prices can mostly be attributed to the lack of single-family homes in the market.

What should you do?

The rate increase has not been set in stone. For borrowers putting 20% down on your mortgage, your best course of action is to consult with your mortgage professional or bank and evaluate how these changes could impact your home-buying decisions. For any mortgage questions, don't hesitate to reach out to Ron for expert advice. For any real estate related question, please reach out to me at: Contact information:

C: (306) 716-2774

E: alvi.campos@century21.ca Download digital business card here.

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