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Mortgage stress test rules become lenient for the first time in years

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Canadian mortgage rates have dropped for the first time since the Canadian government implemented new stress rules on mortgages, allowing potential homebuyers to qualify for bigger mortgages than before.

The stress test was introduced in January 2018, becoming the financial bar in which any Canadian wanting to obtain a mortgage must pass before getting approval. Irrespective of whatever deal a lender may have offered, before regulators can approve a loan, the borrower’s finances must be tested as though their mortgage was at a high rate.

The whole idea of the stress test is to save borrowers from incurring more debt than they can afford and ensure they have the financial capability to thrive in the instance where the rates increases.

The stress-test level is placed at either two percentage points above the actual mortgage rate or as calculated by the Bank of Canada, whatever the average five-year posted rate is at Canada’s big banks. The highest of either one is then selected as the benchmark.

Since May 2018, the bank rate hasn’t changed after rising to 5.34 per cent. But in July, it decreased for the first time in almost three years to 5.19 per cent.

The effect of slightly lowering of the bar allows people qualify for a bigger mortgage than they could before, even if there are no significant changes in their finances. The move by Bank of Canada to lower the qualification rate, gives prospective homebuyers slightly more purchasing power, allowing them to bid for slightly more expensive homes than the previous rate allowed.

Nonetheless, there are Toronto certified mortgage brokers whose aim is to make it easier for you to make these important decisions by helping you understand the various options available to you—and their respective advantages.

The move isn’t exactly a huge one as according to calculation from rate comparison website Ratehub.ca, the typical borrower can now afford about 1.4 per cent more home than before.Under the previous test level, if a borrower had an initial payment of at least 20 per cent and earned $100,000 annuallywith no other existing debts, they would qualify for a home valued at $589,000. Today, that borrower can now afford a house worth $597,000.

The new reduction doesn’t make mortgages any easier to pay off, it just allows borrowers to theoretically afford a slightly more expensive home than they would have previously been able to.

Although the new five-year benchmark rate spells good news for some prospective homebuyers, in reality, it hasn’t really affected the system, noted Samantha Brookes, CEO of broker Mortgages of Canada.

“It allows someone purchasing to buy a little bit more but it’s not that significant,” she told CBC. “Consumers are in this wait-and-see pattern — it’s still difficult to get into the market because that stress test is there.”

While the little room afforded to homebuyers may make home sales look a little better on paper, but the real impact may just be in our imaginations, says Nick Kyprianou, president of RiverRock Mortgage Investment Corporation, a Toronto-based alternative mortgage lender.

Kyprianou’s business has been made busier by the new stress-test level, as borrows began to ignore traditional lenders and move towards alternative lenders. “But it was a reasonable thing to do,” he says. “As a homeowner and a citizen it wasn’t the wrong decision — things were irrational.”

The stress testing level moving almost unnoticeably lower is likely to help instil more confidence in the market, as not only is testing level lower but actual mortgage rates are dropping too.

Fixed mortgage rates are priced based on happenings in the bond market, which has been suggesting for months that lower mortgage rates are expected.

With the U.S. central bank planning to cut its benchmark interest rate soon, the Bank of Canada would not be immune to the global forces that may drop the rates down even further.

“This is a psychological game. If people feel confident, they’ll get back in the market,” said Kyprianou, who noted that a reduction in rates in the real world would have a much bigger impact than the little reduction in the stress test.

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Real Estate

A Pre-Approval Does Not Guarantee a Mortgage Approval

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You’ve gone through all the steps, jumped through all the hoops to start living your dream life in a new house. However, before you get too excited about your mortgage pre-approval, be warned that for Canadians, this doesn’t always guarantee a mortgage approval. Here’s how you can easily ensure that you get the property you desire.

Why is Mortgage Not Ensured from the Pre-Approval?

A pre-approval is still an important step to take to eventually lay the ground for a mortgage. It tells the seller of the house that you’re serious and ready to buy. While this step can be infinitely helpful in getting a mortgage, it’s not guaranteed.

The lender doesn’t yet know the property that you’re interested in. Depending on the cost of your future property, the pre-approval may not allow you to open a mortgage for houses above your means.

Pre-approval lets the seller know that your credit is worthy of buying a house, but will not necessarily qualify the buyer for every property out there.

How Can you Ensure you Obtain the House you Want?

Along with the assurance of a pre-approval, you can also take a few steps to ensure a future mortgage.

  1. Have a Great Credit Score. Credit scores show the lender how trustworthy you are with paying back a big purchase. In Canada, credit scores run from 300 to 900. A score of 660 or higher is ideal for getting approved for a mortgage. With a better credit score, you’ll be offered the lowest mortgage rates, which is great for your wallet.
  2. Supply a Larger Down Payment. In Canada, a down payment of less than 20% will require you to get mortgage default loan insurance. Bypass this step by saving up a larger down payment to go in with.
  3. Pay off Debt. A mortgage is not an easy weight to take on. Long-term debt in your name is created when you open up a mortgage. Make sure that your pre-existing debt is paid off before jumping into a new debt payment. This will also be more credible to the banks prospective.
  4. Test out Scenarios. Use a mortgage calculator to see what price range of houses are affordable with your current financial situation. A mortgage calculator will estimate the total monthly payment, including real estate taxes and homeowner’s insurance, that is required for purchasing a home. The calculator will save scenarios to pull up later in order to adjust the calculations to new situational changes. Comparisons of multiple circumstances or housing prices are easily obtained to clearly see what aspects of the purchase process are of importance. In addition, with this Canadian mortgage calculator, a schedule of payments can be printed to show how much the balance due is reduced each month.

What Was the Inspiration?

The perfect house is out there waiting for you to move into! However, be sure to do more than just getting a simple pre-approval. While this pre-approval is helpful in a home search, it’s by no means a guarantee to a mortgage. Keep all these tips in mind while searching for your new residence and stay realistic in what amount of debt you want to take on.

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Real Estate

This Ontario Manor Has More Rooms Than You Could Use & Costs Under $1 Million (PHOTOS)

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It turns out that some Ontario family homes are basically mini-mansions.

This Ontario house for sale comes with more rooms than you’ll ever probably need, and it will cost you less than a small Toronto home would.

The house is in Milverton, Ontario, which is a short drive away from Kitchener.

The listing was built in 1910 and has a ton of rooms, plus it sits on over an acre of land.

There are 12 rooms in all, but that doesn’t include the attic and fully renovated garage.

With that much space comes some pretty unique features, like this amazing vintage safe that’s hidden away in the house.

The house’s turret also lends itself to some unique interior room shapes as well.

There are five bedrooms, which will come in handy when you can have friends and family stay at your place again.

Outside of the house, the barn/garage comes with its own spacious interior.

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Real Estate

8 Of The Cheapest Homes You Can Get Around Ottawa (PHOTOS)

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Not all houses in the National Capital Region come with an enormous price tag. Luckily, there are still some affordable homes for sale around Ottawa if you’re on a tight budget.

The average price of a home in Ottawa is $591,413, according to Zoocasa. But if you’re willing to look outside of the city, you can find much cheaper options.

Here are eight incredible places to live that will make you eager to pack up your stuff and move, including one home with a pool.

Five-Bedroom Home

Price: $299,900

Address: 981 Dianne Ave., Rockland, ON

Description: If you crave a separate space for your home office, this five-bedroom home with a garage has tons of room.

Constance Lake Retreat

Price: $260,000

Address: 168 Constance Lake Rd., Ottawa, ON

Description: While living here, you can enjoy swimming in the pool and the picturesque lake view.

Two-Bedroom Duplex

Price: $259,900

Address: 138 Rue Archambault, Gatineau, QC

Description: This duplex has so much potential and is only a short drive from restaurants and stores.

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