In October 2016, the federal government introduced a new qualifying stress test for mortgage applicants with down payments less than twenty percent. As of January 1, 2018, the qualifying test was extended to include all mortgages regardless of down payment. This week, Finance Minister Bill Morneau announced a change to the stress test that will come into effect as of April 6, 2020.
What is the current stress test?
Mortgage applicants are currently required to qualify at the greater of:
- The current ‘ five-year benchmark’ interest rate posted by the Bank of Canada; or
- The interest rate offered by your Lender, plus 2 percent
What changes will take place in April?
Due to a widening gap between the five-year conventional mortgage rate and actual contract rates, Morneau announced that there will be a new benchmark rate as of April 6, 2020. This new rate will be the weekly median 5-year fixed insured mortgage rate, and will be based on actual mortgage insurance applications received. Moving forward, applicants will need to qualify at the greater of:
- The current ‘weekly median 5-year fixed insured mortgage rate’ plus two percent; or
- The five-year contract mortgage rate plus two percent.
The new rate will be posted by the Bank of Canada every Wednesday, and will come into effect the following Monday.
How will this affect me?
Because the benchmark rate will change weekly, it is difficult to predict the impact on how much mortgage applicants will qualify for. However, based on our own internal data in the example below, this change would have resulted in about 4.6 percent more buying power for our clients over the last three months.
| Maximum Purchase Price -- Old Rules | Maximum Purchase Price -- New Rules | |
|---|---|---|
|
Five percent down |
$436,000 |
$457,000 |
|
Ten percent down |
$461,000 |
$482,000 |
|
Fifteen percent down |
$486,000 |
$509,000 |
Currently, the new benchmark rate will apply only to those with less than twenty percent down on their mortgage. However, the Office of the Superintendent of Financial Institutions (OSFI) is considering applying the same benchmark rate to applicants with down payments of twenty percent or more.
Where can I get more information?
If you would like to speak with someone regarding the upcoming changes and how they will impact your specific situation, our certified mortgage brokers are always happy to help. Simply contact our office online or give us a call at 780-416-1085.
