The new Canadian mortgage rules could affect how much you are able to borrow from financial institutions, and therefore could affect what kind of house you can buy. If you are looking for a mortgage broker in British Columbia, it is important to be up to date with the current market changes so you are aware of what you can and cannot afford.
The federal government is trying to lower the amount of mortgage debt Canadians have. These new rules require a stress test, which is a test to see if you can financially afford a rise in interest rates, without taking on too much debt.
The Stress Test
So what exactly is the new stress test? It a financial test on the greater of the following:
Bank of Canada’s five-year benchmark qualifying rate of 5.14% or
Your contract rate plus an additional 2%.
If you cannot afford the stress test then you either need to look for a cheaper home, or hold off on a home purchase until more money is saved up.
Why the Change?
Mortgage debt is at an all-time high in Canada, which could ultimately affect the entire financial health of the country. The Canadian government is trying to prevent that from happening. So how will this change help? If the government decreases how much people are allowed to borrow from these institutions, then they can prevent borrowers from reaching their highest financial limit. This will help stop people from borrowing more money and should also help cool the housing market. This change affects Canada nationally, including homebuyers looking for a British Columbia mortgage.
Renewing your Mortgage
If you are renewing your mortgage, I am sure you are wondering if you are affected by the stress test. In most cases you do not have to take the stress test if you are renewing your mortgage with your current lender. If you want to change lenders to get a better rate then you will have to take the stress test. If you’re wanting to use a different lender but do not pass the stress test, then you have no other option but to use your current lender. Having limited options means you will be less likely to negotiate.
Refinancing your Mortgage
You still need to take a stress test if you are refinancing your mortgage because these financial institutions need to know whether you can afford your current mortgage with a 2% increase. Depending on your financial situation, you may not be able to borrow as much money from the bank as you had originally intended.
Avoiding the Stress Test
As a mortgage broker in British Columbia, Your Mortgage Source has access to certain lenders in the province that are not regulated by the stress guidelines. Therefore we can still take a look at your situation and qualify you at the rate you are paying rather than the stress test rate. This is applicable only in situations where you have at least 20% down. There are a few other criteria as well so we suggest you contact us to discuss your situation to see if you qualify.
2018 has made a lot of changes in the housing market that has caused Canadians a lot of worry and stress. It is important to know your affordability whether you are looking to purchase, renew, or refinance a mortgage.
Contact Your Mortgage Source, your local mortgage broker in Abbotsford, today for more information at 604.556.3893.