New Mortgage Stress Test Rules

Changes are coming April 6, 2020 to the Mortgage Stress Test Rules. In light of this, we have been researching information and looking to others for their take on things to understand the full scope and impact of the changes.

The changes are contrary to the government’s newly introduced FTHBI program in that it will cause sales to soar and prices to inflate across the country.

We asked asked mortgage expert, Sabeena Bubber of Xeva Mortgage, for her opinion, “They are giving us optics of improvement but it has no big material impact in Vancouver. Paul Taylor represents our national association and he says it best.  The government did not do enough to help.”

Sabeena referred us to a BNN Bloomberg video that quotes Paul Taylor, president and CEO of Mortgage Professionals Canada. You can watch the entire video here. It is very informative. Basically, the government has improved things about 30 basis points where we needed an improvement of 75 basis points to effect a change.

Better Dwelling released an informative article this morning. We follow Better Dwelling closely to keep current on economic impacts and changes to the real estate market. Definitely worth a read (click here).

“ In plain english, this means borrowers will see the maximum mortgage amount increase.”

“ In December, Prime Minister Trudeau ordered the finance minister to review the test. The results came in this week, and they’re going to be making the test more “dynamic.” Starting on April 6, 2020, insured borrowers will see a brand spanking new stress test. The new test, in short, will mean borrowers will be able to take out much bigger mortgages.”

“ The way the stress test was initially set up was arbitrary, and unrealistic. It didn’t respond to real world conditions, and tested people at unusually high rates. It should have been designed with the new measures in the first place. However, the update at this very moment, just a few months after the FTHBI, is going to be problematic. The Government is inflating the maximum purchase price again, right after launching a demand inducement scheme. This comes at the same time sales are soaring across the country, and price growth is nearly at levels before the stress test.”

“The qualifying rate for insured mortgages (those with less than 20 per cent down payment) will now be calculated at the weekly median five-year fixed rate from mortgage insurance applications, plus two per cent. This replaces the previous calculation, which was the Bank of Canada’s average posted interest rate, or the mortgage applicant’s contracted rate plus two per cent, whichever was the higher.”

“The new measure, which goes into effect April 6, is set to ease the qualifying rate from some lenders from the current 5.19 per cent to 4.79 per cent.”

Here is the link to the Business in Vancouver article.

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