Sharon Bercuson

Sharon: 403.874.9078 |

The New Mortgage Stress Test

As you may have heard by now, there are some major changes coming this month to mortgages. The change that is going to affect us and our clients the most is called the Rate Stress Test. We are including the following information, provided to us from one of our favourite Mortgage Brokers (Contact info at the bottom of this email)


We feel he has done a great job of breaking it down and making it easy to understand amidst the flurry of information out there. If you have any questions at all, please don't hesitate to contact us. Bottom line - if you are even considering getting into the Real Estate Market and have less than 20% to put down on your property, let's act quickly (YES, there IS still time!)

With the new rule changes, you are losing up to 20% of your purchase power. See below for more information and don't hesitate to contact us or Steve, or we can point you to a number of other recommended Mortgage Brokers who truly understand the changes and how to work within them.

 

 

The following two articles make it the most clear because the first is direct from the source.  The second is just well written.  I will paste other articles below but many newspapers get some facts wrong.

 

 

http://www.fin.gc.ca/n16/data/16-117_1-eng.asp

 

 

http://www.theglobeandmail.com/real-estate/four-major-changes-to-canadas-housing-rules/article32223470/

 

 

The main change is to have to "stress test" approve any insured mortgage after Oct 17th.  This means that for less than 20% down purchases, and or occasional over 20% insured situations, buyers must qualify as if the the rate were the BOC Bank of Canada 5 yr benchmark.  Currently that rate sits at 4.64%.  Even when their actual mortgage rate is say as low as 2.39%

 

The feds want people to be able to afford rate inflation.  These clients still get the current rate in the 2.39% - 2.49% 5 yr fixed and that won't change after the 17th.  What changes is that your insured mortgage shoppers limit will be based as if their rate is 4.64%.  This will reduce maximum purchase price by around 15-20% (general estimate as each file differs).   

  • A 100k household income who could buy up to $650k now will reduce to $510k
  • A 75k household income who could buy up to $460k today will reduce to $370k

Probably the most immediate and important factor for you is the implementation period. 

 

This change takes effect Oct 17th.  Because banks need time to process a file and send it to an insurer, I would set your cut off date for new contracts at Oct 12th. 

 

You could potentially even have a file close say up to a year later ( I think ) in the case of a build as long as the contract is in before the cut off.  And those situations need some other advice.  If you have buyers who want or need to qualify at the actual 5 yr rate then have them check with me asap.  I mean ASAP.  It may be a crazy next 10 days.

 

This change will not affect buyers who always liked variable.  Their max pp will be the same before and afterward.

 

This change will not affect buyers who always buy well within their limits.

 

This change won't yet affect investment property buyers.  As long as we use the right bank and rules don't tighten further.

 

This change is arguably going to be a medium & long term silver lining for the condo issues going on.  Nothing will help much in the short term.  But many buyers with less than 20% down will be pushed into a price point where only condos exist.  People planning on a house may have to settle first for a condo.

 

This change is likely to increase fixed rates sooner than later.

 

Existing rate saves and pre-approvals will all change due to the new rule effective Oct 17th.  So a last minute pre-approval won't do anything to extend a buying period at the actual lower rate to set a purchase limit.

 

This change will potentially kill anyone who is in a rent to own situation contract.

 

This change may affect people in the middle of or considering a build.  Please refer them to me.

 

This change is very likely to make it harder for people to switch banks at maturity.

 

This change may increase renovations versus selling and buying. 

 

other articles....

 

https://twitter.com/mortgage_tree/status/783116527897751552?cn=ZmF2b3JpdGU%3D&refsrc=email

 

http://www.moneysense.ca/spend/real-estate/mortgages/mortgage-insurance-changes-will-impact-buyers-and-banks/

 

http://www.cbc.ca/news/business/ottawa-housing-tax-real-estate-1.3788725

 

Steven Crawford - Sr. Mortgage Broker

Mortgage Alliance 

Cell Phone / Text - 403-608-7516

Fax to EMAIL 1-888-415-8279

Email - scrawford@mortgagealliance.com

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