Stressed by mortgage test

The only thing constant in the real estate business is change. And once again, we have a change in the mortgage rules that will affect many real-estate buyers.

As of Jan. 1, the government has implemented a stress test on conventional mortgages. There seems to be some confusion as to what this means, and as to who will be affected.

This change only affects home buyers (or people looking to re-finance) who wish to purchase/re-finance and have a 20 per cent or greater down payment. For example, someone purchasing a $500,000 home and has a $100,000 or greater down payment. 

This does not affect buyers who have less than 20 per cent of the purchase price as a down payment, as those buyers were already required to qualify for the stress test.

This means that anyone with a 20 per cent or greater down payment on a home will be required to qualify for their mortgage based on calculations on the greater of either the five-year posted rate or two per cent higher than their contract rate. 

Often, the posted rates are far more than the rate agreed upon with the financial institution.

For example, if you have a pre-approval for a three per cent mortgage rate, the regulations will now require you to have the ability to afford to pay your payments on your mortgage as though the rate on your mortgage was five per cent.

Another example: The interest payment on a mortgage of $300,000 at three per cent with a 25-year amortization would be $1,420 per month.

At a five per cent interest rate, that same mortgage would cost $1,745 per month. With these new rules, you would be paying $1,420 per month, however you would have to qualify for the mortgage as though it were $1,745 per month.  

As of Jan. 1, regardless of how little or how much you have saved as a down payment, buyers must qualify at the higher stress test rate. We strongly recommend that if you are thinking of buying in the near future, you take this into consideration.

Please note that pre-approvals in place will not protect you from this change.

If you believe these changes may affect you, local mortgage professionals are recommending to action well before Dec 1, 2017 as often lenders implement the new rules early. 

In a nutshell, there have been significant changes to the mortgage lending market every year for the past 10 years. We shall see you here again next year, similar time, same place, likely with more changes, whether we like them or not!

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About the Author

Lisa Salt is a Vernon born Realtor® who, along with her husband Gord Fowler from Calgary, lead one of the most successful and dynamic real estate teams in the North Okanagan. 

An international clay target shooting champion, Lisa brought the attributes of hard work and diligent focus to the real estate industry to create the success she and her team have today. 

To experience the local knowledge and expertise that only someone born and raised in the Okanagan can offer, call Lisa today and 'Just Add Salt'.

Website link:   http://www.saltfowler.com

Contact e-mail address:  [email protected]


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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