As of January 1st 2018, the mortgage “stress test” is to be expanded and Canadians are going to find it harder to get financing and to refinance than ever before.
The Government has tightened the rules around mortgage lending 6 times since July 2008 and this January 2018 will be the 7th squeeze.
Now, it won’t matter if you have more than 20% to put down on a home, but purchasers will need to qualify at minimum qualifying rate equal to the greater of the Bank of Canada’s five-year benchmark rate (currently 4.99 per cent) or their contractual rate plus two percentage points.
The new mortgage rules will affect about 100,000 home buyers.
If you’re going be house-hunting, this may force you to settle for a less expensive home or, you might have to wait and save up for a larger down payment.
Of the 100,000 or so prospective home buyers that will hit a snag because of the stress test next year. Estimates are that about half the purchasers will be able to make a different purchase than they had planned. The rest will give up on a home purchase.
If you’re renewing your mortgage next year, lenders don’t have to apply the stress test to clients renewing an existing mortgage as long as the mortgage amount does not change.
This means that if you fail the stress test, you’ll probably get stuck renewing with your current financial institution, without being able to shop around for a better rate.
In some cases, renewing borrowers may be forced to accept uncompetitive rates from their current lenders.
For more information and to review your financing needs, Contact Geoff Del Grande.