Rumy Gill – Mortgages In GTA, is here to Help you Overcome the Mortgage Stress Test Rules
Mortgages and Stress Test Rules. With the new year just around the corner, Canadians’ are starting to make resolutions and new year plans, which often include aspirations to buy a home or renovate their existing home.
While aspiring and current home owners that are looking to do renovations or just renew their existing mortgage may think they are armed with the knowledge they need, given that Stress Test rules on mortgage lending were introduced by the Office of the Superintendent of Financial Institutions (OSFI) back in October 2017, they could be sadly mistaken.
What many may fail to realize is the new Stress Test rules that has come into affect as of January 1, 2018 has affected everyone looking to buy, renovate or renew, and not just those who have less than a 20 per cent down payment that are looking to buy. In other words, all mortgage borrowers looking to purchase, re-finance their existing mortgage for needed funds, or looking to switch their existing mortgage at renewal to a different financial institution, will be subject to a new minimum qualifying rate, or “Stress Test”.
To clarify, the new Stress Test requires anyone who falls under the category of “uninsured mortgage consumers”, meaning they have equity in their home of more than 20%, to qualify using a new minimum qualifying rate.
As of January 1st, 2018, all consumers must qualify for a mortgage at
(a) the five-year benchmark rate published by the Bank of Canada or
(b) the lender contractual mortgage rate plus 2%; whichever is greater.
The only exception to being subjected to the new Stress Test is borrowers who have to renew their mortgages but keep them with the same lender.
Among the other changes to came into effect for 2018 are new rules for lenders who will be required to more carefully scrutinize loan-to-value ratios when determining their mortgage loans. OSFI is said to be trying to ensure any agreed-to mortgages going forward will not be larger than the value of the homes they are compared against.
Now more than ever, with buying power being impacted, Canadian home buyers need to arm themselves with practical information on how they can ensure they are “Stress Test ready”.
Here is a guide and best practices tool kit for those about to embark on securing their new or next mortgage:
Make a Financial Plan
Any time a big purchase is at stake, laying out a financial plan is always the best first step to take. By creating a plan, home buyers can protect themselves from increased interest rates and ensure they are staying on budget.
Have a Contingency Fund
Without question and now more than ever, home buyers need to establish contingency funds. It’s incredibly important to have funds set aside when unexpected costs such as property repairs arise. An established contingency fund also looks good to financial lenders.
Pay off Debts and Increase Down Payment
The most important tool in the Best Practices Tool Kit is to pay off debts as quickly as possible and maximize your down payment. If you already have a mortgage, increase the frequency of payments by taking advantage of what the financial institution offers such as accelerated bi-weekly payments.
Broaden Search Parameters
Although you may have an ideal neighbourhood in mind, it is important to also consider broadening those search parameters. Often there are homes in other neighborhoods that could be a perfect choice if you are willing to commute a little longer.
I’m Here to Help You
I can help you to navigate confusion surrounding the Stress Test. Ultimately, being Stress Test ready means being ready for future increases in rate so that you can afford your next home comfortably on your budget.
If you are seeking addition information or looking have a plan customized to you then get in contact with me today and I can help find a solution for your home financing needs!
Tel: (647) 464-3939
Brokerage Lic# 10428
All Information written in this article has been provided and published by Rumy Gill and Verico from monthly Verico newsletters.