A new version of the mortgage stress test will go into effect on April 6, 2020. It is a modification of the existing rules, not a repeal or major change as some had hoped. Let’s learn more about the stress test before we predict its impact on the Red Deer mortgage and real estate market.
What Is the New Mortgage Stress Test?
The mortgage stress test will now use the weekly, median, 5-year fixed insured mortgage rate with an added two percent. This makes the mortgage stress test more responsive to the market. It also solves a problem critics point out more than a year ago. The big banks are accused of manipulating their five year fixed rate, also known as the posted rates, keeping them artificially high. Bill Morneau, the Minister of Finance, was to review the stress test and make it more responsive to market conditions. Justin Trudeau’s specific request was to make it more “dynamic”.
So How Does This Affect Me?
If you’re considering shopping for a new home this spring, it could affect you two different ways. One is that it will probably allow you to qualify for more of a mortgage and get that little bit extra you needed to get yourself the perfect home, or to allow you to add more into your purchase plus improvements mortgage. For example, the current interest rate is roughly 2.34 percent. The April 2020 stress test uses the average of all the lenders including non-bank lenders who do not have posted rates, rate plus two full percentage points for the stress test. That rate would be 4.34% using our 2.34% value + 2%. That’s a full .85 basis points below the current stress test rate of 5.19%. That may not sound like much, but a quarter of an interest rate means you can spend that much more on a new mortgage and home in Red Deer. The Office of the Superintendent of Financial Institutions will be using this same, new “dynamic” benchmark rate to determine the minimum qualifying rate for uninsured mortgages. In short, it will allow you to get those extras in the home you always wanted. It can add thousands of extra in spending on your new Red Deer home. Call us at Whalen Mortgages Red Deer to get your mortgage pre-approval started and out house shopping!
With an influx of newly qualified mortgage customers and many more who can now afford more home, we expect a busy real estate market once the new rules go into effect.
What about Private Mortgage Lenders?
These changes won’t affect private mortgage lenders in Red Deer or any other part of the country. They were never regulated by the federal government.