My Mortgage Blog

Has the mortgage stress test negatively impacted you?

The mortgage stress test has certainly been adding stress to borrowers lives! Could changes help relieve your stress?

For most Canadians their home is the largest investment they'll ever make. The Government of Canada will tell you that this is why they introduced "measures to help more Canadians achieve their housing needs while also taking measured actions to contain risks in the housing market. A stable and healthy housing market is part of a strong economy. A strong economy is vital to building and supporting a strong middle class."

Yesterday, Minister of Finance, Bill Morneau, finally announced changes to the benchmark rate used for the “stress test.”

The Changes to Insured Mortgages

The new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%.  As of April 6, 2020, this means that borrowers with less than 20% down will now qualify at their contract rate (the rate they are actually paying), plus 2%.

Our national professional organization, Mortgage Professionals Canada (MPC), has been recommending uncoupling the stress test rates from the Bank of Canada (BoC) posted 5 year fixed rate since the beginning. Setting the floating rate on the insured contract rate will make the test more dynamic and responsive to market and bond rates.

According to the announcement, the review concluded that mortgage standards are working to ensure that home buyers are able to afford their homes even if interest rates rise, incomes change, or families are faced with unforeseen expenses. This adjustment to the stress test will make it more representative of the mortgage rates offered by lenders and more responsive to market conditions.

We thank the government for acknowledging this issue and making these changes. As a Mortgage Broker, I do, however, still consider a two percent (2%) buffer to be an onerous test level given the economic realities globally.

The Proposed Changes to Uninsured Mortgages

In addition to the changes to insured mortgages, the Office of the Superintendent of Financial Institutions (OSFI) also announced today that it is considering the same new benchmark rate to determine the minimum qualifying rate for uninsured mortgages. OSFI is the independent banking regulator that sets the minimum qualifying rate for uninsured mortgages.

OSFI is seeking input from interested stakeholders on this proposal before March 17, 2020.

Stay Tuned!

Today is MPC's fifth Parliament Hill day in Ottawa. The association has over 50 meetings scheduled with MPs, Senators and senior policy officials. The organization's representatives will thank the government for making this first, much-needed adjustment to mortgage qualification in Canada. They will also continue to ask for additional support measures for those most impacted by the introduction of these tests; aspiring middle-class Canadians and would-be first-time buyers.

Included in their asks will be the reintroduction of an insurable 30-year amortization for first-time buyers, and increases in the income maximum multipliers under the newly introduced First Time Home Buyers Incentive Plan.

Stay tuned for more good news on that front in the coming months!

If you'd like to understand how these changes could affect you, please contact me for a no obligation consultation!