What does the new stress test mean?
Based on the new regulation, a stress test is now required for all insured mortgage seekers. This means that everyone looking to purchase a new home must undergo these tests to prove that they are capable of continuing their payments even if the interest rates go up by a significant factor.
Up until now, stress tests were not required for fixed-rate mortgages longer than 5 year term.
However, with the new Department of Finance regulations in place, all insured mortgages, regardless of fixed or variable term will have to undergo and qualify the stress test.
How does the latest mortgage lending rule affect you?
The federal government introduced a new mortgage rate stress test for all insured mortgages effective Monday October 17th creating a new challenge for potential homebuyers in Canada.
Essentially the new regulation is aimed at protecting the financial wellbeing of Canadians to support the stability of the housing market in Canada in the long run.
However, many people working within the mortgage industry says that they are overly concerned with the upcoming trend in Canadian mortgage lending markets. They claim that the harsh changes that would occur in this sector can encourage more people to take the option of the forbidden shadow banking process which further imposes a lot of risks. This is in fact a dangerous threat to the whole financial system of Canada and its future.
Ottawa tightens regulations with great expectations of growth
Finance minister Bill Morneau announced earlier that the federal government will close a tax loophole that foreign buyers have been taking advantage of. This has led to exceptionally strong activity in certain major housing markets such as Toronto and Vancouver leading to soaring home prices. The government is strongly looking to limit the flow of foreign currency into Canadian real estate markets.
Does this affect a home buyer?
Yes, the introduction of the stress test brings a significant change to the mortgage amount a home buyer would qualify for. If the down payment is less than 20% of purchase price the Bank of Canada’s posted rate will be a prominent factor while determining the qualifying mortgage amount. However, if the down payment is over 20% the impact is not significant as many options are available to homebuyers.
How can your Oakville Mortgage Broker help in this situation?
While the government is making valiant efforts to stabilize the regulated sectors of the economy attempting to maintain balance. Having said that, reorganizing and conducting all these factors would require more work and consultation from both sides, the government as well as financial institutions.
As your trusted Oakville mortgage broker, we still have exclusive access to industry knowledge that can help you choose the lender that best suits your financial situation. Contact us for a free consultation. We represent you as a homebuyer, and guide you through these changing times.