The mortgage stress test has been a bane for Grande Prairie home buyers since it was rolled out. It shut out many people from the housing market because it used an interest rate far above the typically offered mortgage interest rate to determine if they could qualify for a new home loan. All of this will change with the new mortgage stress test that will apply to every new mortgage issued in early April 2020. It will make it a little easier to qualify for your next mortgage in Grande Prairie allowing you to spend more on your new home, freeing up options.
The New Stress Test for April 2020
The new mortgage stress test will use the weekly, median, 5-year fixed insured mortgage rate plus two percent. Today’s mortgage interest rate is around 2.34 percent. This yields a mortgage stress test interest rate of 4.34 percent. For comparison’s sake, this is a full .85 basis points below the current stress test interest rate of 5.19 percent. Assuming your credit and down payment hasn’t changed, this means you’re allowed to borrow several thousand dollars more for a new home. It will also allow thousands of additional Grande Prairie residents to qualify for a mortgage. This is because the OSFI announced it will use the same, new benchmark rate to determine the minimum qualifying interest rate for uninsured mortgages.
This change to the mortgage stress test came about after critics pointed out that the big banks were keeping their posted rates high, though real mortgage rates have been falling since 2019. This meant that the stress test was out of sync with the actual mortgage interest rates. It also hurt the housing market by shutting out many potential home buyers. That probably contributed to the stalled Canadian housing market of 2019.
A side benefit of the new stress test is that it is more responsive to market conditions. It will spike along with interest rates, but it will fall much faster, too, if Canada slips into a recession. And Big Banks can’t profit by keeping posted rates high, regardless of what it does to the housing market or Canadian economy.
Give us at Whalen Mortgages Grande Prairie a call anytime and we can help you see how much you can spend once the new rules take into effect April 6, 2020. 780-357-3993
The Impact of the New Stress Test on the Grande Prairie Mortgage Market?
We can expect a busy home-buying season this spring because many more potential Grande Prairie residents will qualify for an insured mortgage or for an increased amount allowing them to get that dream home they wanted. This will help the housing market to get very busy quickly. It may even cause housing prices to rise slightly.
We would like to add that these rule changes haven’t affected private mortgage lenders. They are not subject to these government policies, and they are not regulated by the federal government. This is why they were increasingly popular as the mortgage stress test was ruled out. And they continue to offer competitive interest rates and diverse loan products to their customers.