New Mortgage Stress Test – What You Need to Know

As many of you know, OFSI (the Superintendent of Financial Institutions) announced a new mortgage rule coming into effect on January 1st. This new mortgage rule is a “Stress Test” which requires that Buyers with over 20% down qualify for their mortgage at an interest rate 2% higher than the available rates, to be assured that if/when interest rates increase, the Buyers will be able to afford the higher payments (http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/Pages/B20_dft_nr.aspx). When Buyers have to qualify for a mortgage at a higher interest rate, their overall affordability goes down since their monthly payments go up.

This new mortgage stress test was instituted for Buyers with less than 20% down back in Fall of 2016, and unfortunately, didn’t decrease or stall the market. Of course, there were some Buyers who were reaching to buy their first place and likely wouldn’t be approved with the stress test in place (I feel for those Buyers!), but overall, the market remained busy. Given that the stress test decreases Buyers affordability, the market that will be hit the hardest is the multi-million dollar market and those Buyers who were stretching to get into their ideal property.

At the end of the day, we’ll have to wait to see how the stress test for Buyers with over 20% down will affect the market, but aside from stalling for a period of time, I don’t expect anything major to change. It may actually make the townhouses and entry level detached market even busier.

Attention Buyers: Some pre-approvals will be honoured, it just has to be submitted with all the correct information through specific lenders.

The new mortgage stress test comes into effect on January 1st, so any Buyers purchasing after that date (who don’t yet have a contract in place) will be subject to the new qualifying rules. The good news is *some* pre-approvals will be honoured! My recommended mortgage brokers (/mortgage-broker-recommendation/) have been working hard to understand how lenders will interpret these new rules, and how it affects Buyers in various financial situations.

Certain banks and mortgage lenders are honouring existing pre-approvals, meaning you’ll be able to qualify for a mortgage using the old rules, which gives you a bit more money to spend helping you acquire the property that meets your wants and needs. The caveat is that you need to have an *official* pre-approval in place, which is more than just inquiring about your affordability with the bank. An official pre-approval requires the submission of your financials statements and work information, and can be done by a great mortgage broker. Ideally, you want to submit your new pre-approval on December 29th (the last weekday of 2016) which gives you 120 days to purchase a property under the old rules. Make sure you get into contact with a mortgage broker now to ensure that everything is organized and ready to go for that date.

Note that credit unions (like Vancity) do now have to institute the new stress test, but they are expected to adjust their approvals to do something similar.

Mortgages are a complicated, layered faucet of purchasing, so make sure you have a mortgage broker who is on top of all industry changes and can offer creative options.