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Mortgage Stress Test
6-27-2018
The stress test, which came into effect in January this year, now requires homebuyers with 20 percent down payment to demonstrate that they can withstand an interest rate increase of two percent points on their mortgage.
The regulations affect all six of Canada’s big banks, some provincial regulated lenders, like credit unions, are also voluntarily complying with the guidelines.
Broadly speaking, the rules mean you may not be able to borrow as much as you would have been able to before the start of the year. If you’re house hunting, you may have to settle for a less-expensive home. If you’re renewing your mortgage, you may be forced to stay with your current lender. This allows you to side-step the stress test but it also means you can’t shop around for a better mortgage. And if you’re hoping to refinance, you may not be able to boost your loan by as much as you’d like – if at all.
Canadians who can afford a down payment of 20 per cent or more are currently facing about $500 in monthly mortgage payments for every $100,000 of mortgage debt, assuming a 25-year amortization period. The new rules mean they have to qualify as if their monthly payments were about $600 for every $100,000 worth of mortgage.
If you want to stress test your finances, ask yourself what would happen if you had to pay $600 a month for every $100,000 on your mortgage balance. That’s a useful exercise regardless of whether or not you actually face the test, given that interest rates are rising.
B.C. home sales decline blamed on mortgage stress test
At the tail end of a slow spring for B.C. real estate sales, 8,837 homes exchanged hands on the Multiple Listing Service in May, down 28.7 per cent from May 2017, the British Columbia Real Estate Association (BCREA) reported June 15.
Each of the 11 real estate boards across the province that make up the BCREA’s monthly report cited annual sales declines. These range from the relatively minor 6.3 per cent year-over-year decrease seen in the B.C. Northern area that includes Prince George, up to 38.9 per cent down from last year, in Powell River. However, Powell River’s market is small and therefore subject to wide percentage variations, so this does not indicate a trend. Of the larger markets, the Fraser Valley saw the biggest annual decline, down 34.8 per cent.
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