As of June 1st, the mortgage stress test rate has increased to 5.25% from the previous 4.79%. In order to qualify for a mortgage the lender uses the greater of the stress rate OR the proposed interest rate plus two percent. So regardless of the rate you pay on the mortgage the higher stress test rate will make it harder to qualify for a mortgage and will reduce the amount of mortgage a person can qualify for by about 5% of the total loan amount.
This new stress test will be imposed by the federal government on insured mortgages in addition to uninsured mortgages. A mortgage does not need to be insured if the down payment is over 20% of the purchase price, whereas a maximum of 7.5% of the purchase price is required for a down payment if the mortgage is to be insured and the price is under $1 million.
As a result of the increase, a household with an income of $100,000 income can now qualify for a mortgage of approximately $584,000 (depending on credit, having no other debts, etc) on a home worth $730,000 with a 20% down payment of $146,000. Before the change in the stress test they would qualify for a loan amount of $612,000 on a home worth $765,000 with a 20% down payment.
Furthermore, the Office of the Superintendent of Financial Institutions has stated that it will review and communicate the stress test rate at least once a year in December prior to the spring selling season. Overall, this increase has made it harder for home buyers to qualify for mortgages but will help calm the hectic real estate market we have been experiencing.
If you need more information regarding mortgages or if you need any advice on your personal situation please contact our office at 604-556-3893 or email at alex.kotai@ymscanada.ca.
For more information on our mortgage products and your preferred Abbotsford Mortgage Broker please visit our website at www.ymscanada.ca.