A small change in the stress test rate

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On Tuesday, February 25, 2020, Minister of Finance, Bill Morneau announced a change in the stress test rate for insured mortgages (with a down payment of less than 20%).

The Federal Government has changed the Bank of Canada Qualifying rate as an effort to make it easier for a home purchase. Here is a brief explanation.

The benchmark for these minimum qualification rates is currently being published by the Bank of Canada based on the announced five-year regular mortgage rates.

Before the changes: no matter what percentage is currently on the market, we (brokers) should qualify the ratio of customer income and expenses by the percentage prescribed by the state, the so-called “five years posted rate” – now 5.19% (mortgage interest rate). Under the new law: the percentage to qualify for a mortgage is the percentage that the client receives on a mortgage + 2%. For example, if the market interest is 2.7%, the loan interest will be 4.7% (2% + 2.7%).

All of the above means that today, we are qualifying you based on a rate which is 2.40%-2.45% higher than the actual rate being offered. Due to this law, people will be able to obtain permits for a higher mortgage housing cost (about 5% more), especially if interest is going down.

This potentially means more fluctuation in the qualifying rate but as of now, it means that our clients will qualify to purchase at a higher value. Such a small change can be a great help and an opportunity to buy your own home.

On this subject (check of the “stress test” conducted by the OSFI The Office of the Superintendent of Financial Institutions in January) I wrote an article predicting this change (you can read here: https://www.facebook.com/groups/VSFinancialGroup/permalink/1067105690302932/).

At the moment, the change applies only to the insured mortgage and will become active on April 6, 2020. On the same day, OSFI announced that it is considering a change in the definition of the base rate for uninsured mortgages.

The effort is designed to hopefully stimulate the housing economy positively. In our opinion, anything that is benefitting the consumer is certainly welcomed.

If you would like to get started on qualifying for a mortgage, please call us @ (204)326-4479 or send us an email save@vssolutions.ca.
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