Mortgage Stress Test - Policy Updates
BoC Rate Update (%): April 10, 2024
New BoC Rate = 5.0%
Today’s Prime Rate = 7.20%
Next Update = June 05, 2024
What is Mortgage Stress Test Ontario?
Under the mortgage stress test rules, borrowers need to qualify at a higher interest rate than what they sign up for. This applies to both purchases and refinancing.
Under the mortgage stress test, borrowers are qualified by adding 2% to their contract rate.
This test is designed to check the financial stability via debt service ratio of mortgage seekers, in case interest rates go up. Only those who pass the stress test will be entitled for Canadian mortgages with financial institutions.
The mortgage rule of qualifying rate is nothing new because previously (Oct 17, 2016) all mortgage seekers who wanted Variable rate mortgages and any fix rate mortgage with less than 5 years term were being qualified with the mortgage interest rate of 4.64% with 25 years amortization.
At present (May 15, 2024)- The qualifying rate for the Stress test is set to 7.20%.
What is The Purpose of Mortgage Stress Test?
- To cool down the Canadian real estate prices and potentially lower the market corrections damage
- To make it harder to qualify for a mortgage which should cool down the house prices
- To safeguard Federally regulated banks and banking system
Who Gets Effected by the Mortgage Stress Test?
- Every mortgage seeker with or without 20% down payment
- Previously Pre approved home buyers with NO accepted offer
- Home buyers with accepted offers but NO approved mortgage
- Home buyers with high consumer debt
What Are The Impacts Of Mortgage Stress Test?
- Harder to own a home
- 20-30% reduction on the mortgage amount one could qualify for
- Increase in rental market
- Potentially lower the bidding wars & cool off the home prices
- Alternative Real estate acquiring strategies will surface namely VTB, Rent to Own, JV etc.
In case you are wondering about monthly mortgage payments and other expenses when buying real estate check out out absolutely free and very accurate smart phone device mortgage calculator.
You are encouraged to connect with us to discuss your situation so that we can assist you with home buying dreams. We are certain you will be pleased with what we can offer as an alternative solution
All home buyers who booked new real estates with builders or are due for mortgage renewal or looking to refinance their properties to pay off debts etc have to go through this new mortgage rule especially if they want to get best mortgage interest rates.
Below are some of the tips we recommend you to follow;
Sooner the better is the secret.
Only your mortgage advisor can evaluate your financial situation and can gude you on what should be the best approach in your case.
Get in touch with one. If you do not have a expert set up a mortgage strategy session with us.
As you already know Credit, is one the 3 factors which decides if your mortgage business is palatable to the big lenders or you have to look into alternative solutions for your mortgage needs.
The least you can do is;
- Pay off your debts as muchas you can
- Take care of any collections or pending payments. This may not help you but it gives you a head start especially if you start early enough.
- Home buyers: Adjust your purchase price accordingly.
- Look into putting higher down payment. Remember gifts from immediate family members are acceptable towards primary resdiences purchases
- Delay your purchase if you can especially if you are self employed. CMHC plans to get easy with self employed mortgage borrowers. Details to follow.
By How Much Does Ontario’s Mortgage Stress Test Further Lowers Your Realestate Buying Power?
| Gross Income | Mortgage @ 2.49% FRM, 25 yrs Amort.) Before Oct 17, 2017 | Approved Mortgage $ After Oct 17 2016 | Approved Mortgage $ As of Jan 01, 2018 |
|---|---|---|---|
| $50,000 | $298,000 | $237,000 | $229,999 |
| $75,000 | $447,000 | $356,000 | $3444,000 |
| $100,000 | $600,000 | $475,000 | $459,999 |
| $125,000 | $745,000 | $594,000 | $573,600 |
| $150,000 | $894,000 | $713,000 | $688,000 |
| $175,000 | $1,042,000 | $831,000 | $803,000 |
| $200,000 | $1,192,000 | $950,000 | $917,000 |
How To in Ontario?
This is a tricky question indeed.
As you already know all federally regulated lenders has to comply with OSFI requirements.
There are certain mortgage lenders including credit unions who do not have to fully comply with the requirements. They have implemented stricter rules for qualifying borrowers. Expect higher interest rates with credit unions.
Once you pass the stress test, you can ask for interest rates. Fix mortgage rates depend upon Canadian bond yields and variable rate mortgages depends upon Bank of Canada.
Since 2018, alternative Lenders also have implemented new mortgage rules. As a matter of fact they add full 2% to your contract rate to qualify.
Example: If your 1 year rate is 2.45%, they will add 2% to it i.e. you will have to qualify at the rate of 4.45%.
Got a question about your next mortgage or are looking to consolidate debts from credit cards you better speak to a good mortgage broker in Mississauga who can evaluate your situation and advice you of viable solutions and alternatives.
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