It is time to meet your mortgage broker to discuss the new stress test for Canadian mortgage market if you have not already done so. Recently, precisely in January 2018, the office of superintendent of financial institutions came up with the set of new rules for mortgage lending. The OSFI is Canada’s regulator of banks, and this law seeks to regulate how mortgage institutions lend to home buyers.
There are commentaries regarding the new stress rules, but unless you visit a mortgage lender or discuss with your mortgage broker, you may continue to chew of hearsay. A visit to Owemanco will reveal the truth behind the stress test especially for new home buyers.
What is the stress test about?
Before now, a new home buyer or buyers who had made a down payment of less than 20% are to pass the stress test. However, the new rules make it compulsory for the new home buyer to qualify for mortgage lending at a rate above either 2% – 200 basis points more than the mortgage they are qualified or 5-year benchmark rate of the Bank of Canada.
The impact of the new stress test rule
Mortgage institutions like Owemanco will make it more apparent if you approach them for clarification. However, it is not the first time this is happening as we recall similar efforts have been made since 2008 to tighten rules around mortgage lending. While it is estimated that the new rule will affect around 100,000 homebuyers across Canada as they are likely to fail the test, we think it’s time potential homebuyer start working with relevant mortgage lenders to preparer to pass the test.
Below, we list the importance of the new stress rules for homebuyers:
1. The new homebuyer needs to work with mortgage lenders in earnest. The stress test mandates financial institutions to vet a mortgage application using the new rule criteria. Therefore, working with Owemanco and other mortgage institution will help potential mortgage lender work with professionals and mortgage brokers to prepare ahead.
2. The need to go small. New homebuyer or those intending to change to bigger homes may need to reconsider the need for a more modest house that fit their current savings. Choosing smaller homes may not necessarily mean less space if you work with a professional realtor to find you small dwellings of affordable prices and not the size of the property.
3. Ongoing mortgage applicant may be stuck with their current lenders. If your mortgage application is on review, it means you don’t have to retake the test. However, because to maintain status quo, your lender cannot change its current financial institution, you are to continue with the same lender which means you have no option than to accept the rates from the existing lender.
4. Refinancing borrowers must meet the new stress test. If you are refinancing and the new rule caught up with your application, you may have to pay more.
Home ownership should make life easier! In a situation of people carrying more debt than they can cope with, such owners are facing serious problems than the home can offer relief. The government and the banking institutions aim at lowering the burden of debt on people. If you can’t handle the higher mortgage, you can work with your realtor or the right mortgage broker to find the right housing at affordable price. After that, meet Owemanco and proceed with your test. Get a mortgage that is stress test compliant!