The Canadian government has tightened its mortgage regulations over the past few years in an effort to cool off overheated housing markets like Toronto and Vancouver while trying to prevent people ending up in homes they can’t afford. This led to the use of mortgage stress tests based on a five year benchmark rate. That interest rate is an amalgamation of the posted interest rates at Canada’s Big Six Banks.  

The Bank of Canada lowered the benchmark qualifying interest rate from 5.34 percent to 5.19 percent. This was the first decline in the interest rate used in mortgage stress tests in three years. That’s still higher than the 4.74 percent interest rate seen in 2016, the last time the benchmark interest rates fell. Mortgage interest rates began to rise after that, and this is the first time they’ve declined at all since then.  

Grande Prairie mortgage holders would see slightly lower payments if they refinanced their mortgage. The greater impact would be Grande Prairie home buyers. A lower interest rate used in the mortgage stress test translates to a higher maximum mortgage. This 0.15 percent drop in interest rate means your mortgage could be up to 1.4 percent higher.  

Let’s look at the numbers. If you earn 50,000 dollars a year and put 20 percent down on a house, the mortgage that the bank says you could afford is 4000 dollars more than it was before the benchmark rate changed. This isn’t going to turn the housing market around, but it means more could afford to buy that home they’ve been dreaming of. Because the mortgage stress test is used for both insured and uninsured mortgages, many more people will be able to qualify for a mortgage.  

Uninsured mortgages started using the stress test at the start of 2018, and it applies to any purchase where buyers put less than twenty percent down. Uninsured mortgage applicants then had to prove they could afford the house payments if the interest rate was two percentage points higher than the contracted interest rate on the mortgage or the benchmark rate. A drop in the benchmark rate allows more of them to qualify for a Grande Prairie mortgage.   

This modest change has caused home sales to increase. However, it will take a half point reduction to cause the housing market to rebound. What are a few ways to strengthen the Grande Prairie real estate market? One would be bringing back the classic 30 year insured mortgage. Another is loosening the mortgage stress test if not doing away with it altogether. Eliminating the mortgage stress test for those who want to renew their mortgage with another lender helps many who want to stay in their homes. The money they could save by switching mortgage lenders at renewal would help the Canadian economy. The only remaining solution for Grande Prairie home owners is to consult with a mortgage broker like Whalen Mortgages to find out how they can get a lower interest rate, whether they’re renewing their mortgage or shopping for a new home.  

 

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