New Mortgage Stress Test: Putting Your Stress Level to the Test?
Pandemic, Properties and Puppies have been the defining 3 P’s of 2020-2021. Hand in hand with the raging pandemic as we go through multiple waives, the property market is fizzling hot with Canadian sitting on unprecedented levels of household savings. Following 2-3 years of “government induced” cooling in the housing market in the years leading up to the pandemic, there was so much pent-up demand for housing that coupled with a pandemic forcing people to stay at home, poured extra fuel in an already ready to take off market. In an effort to cool down the housing market, the Feds are now looking to tighten the mortgage stress test, which just before the pandemic, was being considered for relaxation to improve the housing market at the time. Goes to show how quickly things can change, the unpredictability of the housing market has policy makers regularly adjusting strategies in strive for a balance. So, what is the stress test and how does it impact mortgage interest rates? Much like when you do a health check, the mortgage stress test, examines the borrower’s ability to continue to service their mortgage debt in face of financial difficulty and more importantly increased interest rates. With the rates at historical low levels, the only way for the rates to go in the future is up. So, it seems prudent for the feds to ensure the safety of our financial system in the face of increased rates in the future. As of June 2021, the regulators are increasing the test requirements and qualifying rate that better caters to uninsured mortgages. “In order to pass the mortgage stress test, you’ll need to qualify at your contracted mortgage interest rate plus 2% or the Bank of Canada’s current five-year benchmark rate, whichever of the two is greater. As of this writing, the Bank of Canada’s five-year benchmark rate is 4.79%” [loanscanada.ca] Introduction of the stress test back in 2018, had an almost instantaneous chilling effect on the market. However, the dynamics have changed drastically since the pandemic began, borrowers’ priorities and perspective have dramatically shifted and there is almost a 3years of pent-up demand in the face of diminished supply that is also putting pressure on prices. It would be interesting to see if the stress test would have similar effects this time around. [bnnbloomberg.ca] According to the Bloomberg, six out of ten (63%) of Canadians believe that the value of real estate is going to increase and are feeling much stronger about the economy since the start of the COVID-19 pandemic. As the Canadian housing market continues to steam up, by tightening up the stress test regulations, many are hoping for a cool down in the market. With all the commotion because of this year’s stress test readjustments, Canadians are taking no chances and putting their dollars into safe keeping, as good use. Whether you are looking to score that property you have been eyeing, or renew or refinance your current mortgage, we all deserve the access to the financing we need at best Canadian interest rates that are realistic to our unique circumstances. If you are looking to get into a property before the new stress test is in effect, you might be well served to shop around to secure the best mortgage rates. At WiiBid, borrowers are provided with the freedom of choice, and are presented to an array of lenders who will bid on a given rate and offer unique funding options. Through a single application competition starts and the bidding between lenders helps you achieve the lowest possible rate that fits your financing needs. WiiBid leverages auction theory by creating a marketplace that promotes direct engagement between lenders and borrowers within the prime, private, and alternative mortgage industry. Check out www.wiibid.com to read more about how you can access accelerated funding for your next mortgage move.