Mortgage rules tightening

During the last few weeks, we have been waiting for an announcement regarding the mortgage stress test rate.

That announcement came last week.

Effective June 1, all borrowers will have to qualify for their mortgages based on a rate of 5.25%, which is up from the current qualifying rate of 4.79%.

This change was rolled out for implementation within less than two weeks. We are still waiting for clarification with respect to how lenders will be handling files already in progress.

I anticipate we will see a flurry of activity before the June 1 implementation date.

What does the impact of this change look like?

As an example, working with these numbers:

  • Family income of $80,000
  • Property taxes of $3,000
  • Strata fees of $300 monthly
  • No other significant debt
  • Down payment of $25,000

With the stress test rate at 4.79%, this family would qualify for a purchase price of approximately $375,000.

With the increased stress test rate of 5.25%, and everything else staying the same, this family will now qualify for a purchase price of $350,000.

While the intent (I feel) is to slow down a crazy housing market, I think the people that will be most significantly affected are lower-earning home buyers, and home buyers with less down payment to put toward their purchase.

While they may have been sitting on the cusp of being able to buy a home, this increased stress test rate will prevent even more Canadians from entering the housing market.

What it does mean is that more affluent people will continue to buy properties for their rental portfolios and less wealthy families will have to stay on the rental treadmill for a while longer yet.

Home ownership is a privilege, not a right. I get that. But raising the bar so that fewer are able to afford their own home is truly disappointing.

I talk to multiple clients every week who are paying more in rent than they would pay for a mortgage on the same property.

The key takeaway here is that if you are out looking to buy a home, or have a pre-approval in place, is that you need to connect with your mortgage person right away to see how this change might affect your borrowing power.

If you’d like help figuring out what you qualify to borrow, feel free to reach out. We are happy to run the numbers for you.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


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About the Author

Tracy Head helps busy families get a head start on home ownership.

With today’s increasingly complicated mortgage rules, Tracy spends time getting to know her clients and helps them to better understand the mortgage process. She supports her clients before, during, and after their mortgage is in place.

Tracy works closely with her clients, offering advice and options. With access to more than 40 different lenders. She is able to assist with residential, commercial, and reverse mortgages in order to match the needs of her clients with the right mortgage package.

Tracy works hard to find the right fit for her clients and provide support for years down the road.

Call Tracy at 250-826-5857 or reach out by email [email protected]

Visit her website at www.headstartmortgages.com

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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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