Mortgage Stress Test Changes

2020 Mortgage Stress Test Changes

 

What’s Changing?

 

  • Effective April 6th, if you are applying for an insured mortgage (i.e., buyers with less than a 20% down payment require an insured mortgage), you need to prove you can qualify for that mortgage based on a New Benchmark Qualifying Rate.
  • For comparison purposes, the Department of Finance stated, if the change was implemented today, the new qualifying rate would be 4.89% vs. the current qualifying rate of 5.19%. (This will continue to fluctuate leading up to April 6th).
  • Assuming the above-mentioned rate, it would increase affordability by approximately 3% (i.e., if you qualified for $500,000, your affordability would increase to $515,000).

***Please keep in mind insured mortgages are not available for properties $1,000,000 and over.***

 

What About Uninsured Mortgages?

 

  • At this point there is no change to the qualifying criteria for uninsured mortgages (those with 20% or moredown payment).  However, Office of the Superintendant of Financial Institutions (OSFI) is currently taking input from stakeholders until March 17th, and will communicate any amendments to the benchmark rate for uninsured mortgages by April 1,  with changes effective on April 6th.

 

What’s the Difference Between the Current and New Benchmark Qualifying Rate?

 

  • The current benchmark qualifying rate for insured mortgages is based on the most recurring of the Big-6 banks’ 5-year fixed posted rates.
  • The New Benchmark Qualifying Rate for insured mortgages will be published weekly and equal to the average of the actual 5-year fixed insured mortgage rates from mortgage insurance applications plus a 200 basis point (two percent) buffer.
  • The Department of Finance states “the new Benchmark Rate will be more responsive to market conditions by tracking the actual mortgage rates offered by lenders at the application stage….” and “The Minister of Finance will have the authority to adjust the buffer”.

 

Keep watch for further updates and information related to the new Stress Tests as we approach April 6th, 2020.

Sourced via Outline Financial.

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