Should you stress about the Stress Test?
October 25, 2016 | Posted by: Andrea Cass
Should you stress about the Stress Test?
The High-Ratio Rule
There has been a long-time rule that you must
have “high-ratio mortgage insurance” (CMHC) if you have
less than 20% down payment. This insurance is
there to protect the lender, and the premium is
almost always added to your mortgage amount.
What’s changed? If you require an insured
mortgage, you must qualify for your mortgage
using the Bank of Canada qualifying rate
(currently 4.64%) regardless of what your
actual mortgage rate will be.
That means that – although I can find you a
much better mortgage rate – you’d still need
to show you can handle the mortgage using
the qualifying rate. This financial “stress test”
was already applicable for fixed and variable
mortgages with terms of 1 to 4 years. Now, it
also applies to fixed-rate mortgages of 5 years
or longer.
Why the new rule? The government wants to be
sure that borrowers can withstand any increases
in mortgage rates when their mortgages come
up for renewal.
Will my payments be higher? No. Your
payments will still be based on your much
lower actual mortgage contract rate. Keep in
mind that mortgage rates are expected to stay
at record lows into 2020. So this new rule isn’t
costing you more. The potential change will be
in how much mortgage you will qualify for: up to
20% less. You may need to plan on purchasing
a less expensive home, or save up a larger
downpayment, or ensure you eliminate all or
most of your other debts.
Although there are definite regional variations,
the Canadian housing market is strong. A good
part of the reason for that strength is that we have
had stringent mortgage requirements. Mortgage
defaults in Canada continue to be very low: in
spite of the ups and downs of the economy.
The new rules are aimed at ensuring
home ownership continues to be a solid,
long-term investment. Give me a call:
I’ll help ensure you make the most of it!
The High-Ratio Rule
