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Stress Test on the Move…Facts vs Fiction
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If you Google “Mortgage Stress Test”, your computer will buzz with numerous articles written about the February 18th Stress Test change announcement from the Department of Finance. What’s fact and what’s fiction? What follows is round up of that facts that we know so far…
- – 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 that if the change was implemented today, the new qualifying rate would be 4.89% vs. the current qualifying rate of 5.19%. (These will continue to fluctuate leading up to April 6th).
- – Assuming the above rates, it would have the impact of increasing affordability by about 3% (i.e., if you qualified for $500,000, your affordability would increase to $515,000; if you qualified for $750,000 your affordability would increase to $772,500, all else being equal).
- – It is important to remember that insured mortgages are not available for properties that are $1,000,000 and above.
What About Uninsured Mortgages?
- – At this point there is no change to the qualifying criteria for uninsured mortgages (those with 20% or more down payment). However, 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 average (mode) 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 (median) 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”.
Links to the Department of Finance Announcement
- NEWS RELEASE: https://www.canada.ca/en/department-finance/news/2020/02/minister-morneau-announces-new-benchmark-rate-for-qualifying-insured-mortgages.html
- BACKGROUNDER: https://www.canada.ca/en/department-finance/news/2020/02/a-new-benchmark-rate-for-insured-mortgages.html
- UNINSURED MORTGAGE ANNOUNCEMENT: http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/Pages/nr20200218.aspx
- We will be updating this blog as more facts come in about the upcoming Stress Test changes. For any questions, or for more information, please contact:
- Outline Financial
- Email: email@example.com
- Tel: 416-536-9669
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