Tag Archive for: Stress test

Qualifying rate change

As some of you may know that we have a mortgage stress test or qualifying rate of 5.25%. This is to help insure that when you are qualifying for a mortgage you will still be able to make the payments if and or when the rate changed to 5.25%. What many of you may not have heard is that this qualifying rate or stress test rate has now increased.

Actually it has not changed but it has increased so let me explain. The way the stress test works is that it is based on the contract rate ( your mortgage rate) plus 2% or 5.25% which ever is greater. The stress test rate of 5.25% has not changed but the mortgage rates have thus moving the qualifying rate now above 5.25%.

Rates have been increasing as bond yields have changed as they have over the past several months. Yesterday they increased again. Notification received last night that 5 year fixed rates were changing to between 3.54 to 3.84% depending on loan to value ( percentage of down payment compared to the value of the property) and the type of program. So based on these things it would change your qualifying rate to 5.54 to 5.84% thus further reducing your buying power and affordability.

One option would be to go with a variable rate as that still uses the 5.25% qualifying rate until those rates change or select a 1 or 2 year term instead. If you are in the market to purchase a home this year, then please reach out to me so we can lock in your rate now before the next rate increase.

I look forward to hearing from you in regard to your mortgage needs.

Patrick

p.s- You can click on this link to start the process whenever you are ready. Schedule your meeting with me here.

p.s.s- I should tell you that I am licensed in Nova Scotia, Ontario(M18001555) & in British Columbia(BCFSA #504098).

p.s.s.s You can download my new mortgage app here

Stress Test

The purpose of a stress test is see if you have any weaknesses that need to be addressed. Like those who have heart disease and are required to jump on the treadmill to see how their heart responds to exercise, we have a stress test( since Jan 2018) for those looking to purchase a home or refinance their mortgage.

The purpose of the stress test for your mortgage is just to make sure that you will still be able to afford the payments in the event that mortgage rates increase rapidly. Until rather recently the rate used for qualification was 4.79%. While fixed and variable rates are much lower than this rate, it is used as a benchmark to make sure that you can still afford a mortgage if rates were to increase to that point. Now the government ( more specifically The Office of the Superintendent of Financial Institutions or OFSI) took action and changed the qualifying rate to 5.25% or the mortgage contract rate +2% whichever is greater. These changes take effect as of June 1st/2021.

What this essentially does is decrease your buying power by about 5%. Now I don’t think it will do anything to address the overheated real estate market. The problems that we are facing today have to do more with a overwhelming lack of supply rather than people spending more than they can afford to get into a home. Yes I know ( cause I am doing one for a client right now) that CMHC has programs available for developers of multi unit properties where they will finance up to 95% of costs if a certain percentage of units are deemed affordable housing units. However at the rate that these new developments are coming on the market it may take years for our real estate market to balance out. So tit tight, hang on and enjoy the ride.

Today I am thankful for a refreshing light rain during my morning run, reminders that come up in my calendar just in time to make sure that I don’t miss important events and a wonderful sales book written by an author that left us far too early.

The greatest weapon against stress is our ability to choose one thought over another. –  William James

I look forward to hearing from you in regard to your mortgage needs.

Patrick

p.s- You can click on this link to start the process whenever you are ready. Schedule your meeting with me here.

p.s.s- I should tell you that I am licensed in Nova Scotia, Ontario(M18001555) & in British Columbia(BCFSA #504098).

p.s.s.s You can download my new mortgage app here

#TuesdayVibe

Well after several months of mortgage rates going down, they turned the corner and started going back up yesterday. As fixed mortgages are tied to bond yields, they hit a 10 month high on Monday with the 5 year bond closing at 0.67% forcing lenders to pass the increase on to borrowers.

The bond yields are increasing because there is belief that the US inflation with rise much quicker than initially expected. Thus taking our Government of Canada bonds up with them. While I have no crystal ball, we have been very fortunate lately with our current rock bottom fixed mortgage rates. Nothing stays low forever, so if you have been on the fence about buying a property then now is the time to get pre approved and lock in your mortgage rate in advance of future increases.

While these increases have only affected fixed mortgages. The variable rate is based on Bank of Canada Prime Rate. Which after their last meeting in January 2021, they kept their overnight rate at .25% and said that it will likely stay unchanged till 2023. So if you are comfortable with a variable rate, and 9 times out of 10 people have saved more money that way, then I would highly suggest sticking with a variable rate mortgage. As an added bonus even if you every break it, your penalty is only 3 months interest vs a much larger penalty for breaking a fixed rate.

Irregardless of slight changes in the 5 year fixe rate, don’t forget that to get a mortgage these days that you must qualify based on the 5 year posted rate of 4.79%. Also known as the stress test. So while your overall potential payment may have increased by a small amount your buying power remains the same.

I look forward to hearing from you in regards to your mortgage needs.

Pat

p.s- You can click on this link to start the process whenever you are ready. Schedule your meeting with me here.

p.s.s- I should tell you that I am licensed in Nova Scotia, Ontario(M18001555) & in British Columbia(BCFSA #504098).