New Mortgage Rules: How will the Increase in the Stress Test Affect you?

Julie Medeiros | DLC Premier Mortgages #11232

The stress test put simply is a major determining factor in the guidelines provided by the federal government or OSFI (Office of the Superintendent of Financial Institutions) in which lenders use to qualify borrowers for mortgage financing. Currently the stress test is at 4.79% or 2% over the contract rate; the discounted rate you receive from the lender. This stress test at first was a measure put in place to ensure borrowers would be able to afford their mortgages, as interest rates started to increase when it was first implemented in 2018. This additional increase is OSFI’s attempt to cool the housing market we are currently experiencing.

This proposal which will increase the stress test rate to 5.25% as of June 1st will reduce purchasers buying power by approximately 4%. For example if you were approved for a purchase of $500,000 you will now only be able to afford $479,000. That said, this will affect borrowers who are purchasing properties with a 20% down payment or those who are refinancing. Going further, it will really only affect those borrowers that have above average debt and/or are maxed out and really pushing their buying power. We have not heard if this will impact borrowers with less than 20% down.

Some may argue that a better way of tackling the supply and demand issue we are experiencing in the housing market would be to create more supply by way of incentivising builders and developers and reducing the red tape that goes along with said projects. This however is a very complicated process with a number of bureaucracies, people and moving parts to it, and is easier said than done.

We are also waiting to hear further information on whether ALL lenders will be implementing these guidelines as OSFI regulates chartered banks, trust companies and the like. While Mortgage Finance companies such as monoline lenders, credit unions, private companies, etc are not regulated by OSFI, and we will have to wait to see if they will follow suit in implementing these changes. This is yet another reason why using a mortgage broker is the best solution when it comes to mortgage financing. With one application and credit check we are able to do the shopping for you and provide you with the best options to get approved. If you are unsure if this change will affect you please give me a call. It would be my pleasure to review your situation with you.

T. 519.575.3961

jmedeiros@dominionlending.ca

www.juliemedeiros.ca