How Will The Mortgage Stress Test Affect You When Buying or Refinancing a Home?

The Canadian real estate market has been quite busy this December – it’s typically a slow month, as people turn their attention to the holiday season. But this year things are happening.

There is rarely just one reason for changes in market activity, here are the top factors in this unusually bustling December:

  • Prices have normalized after all the Spring market craziness
  • Buyers can make offers with less zany competition than before
  • Buyers want to qualify for a mortgage before the new Mortgage Stress Test Rules come into effect January 01, 2018 

Yes, you heard right… a new stress test is coming our way!

Mortgage brokers have been particularly busy the last several weeks, responding to questions from buyers and homeowners about the new mortgage borrowing stress test coming into effect January 2018.

Starting January, uninsured borrowers from federally regulated lenders must have their finances ‘stress tested’ to ensure they would be able to pay off their mortgages if rates were higher than they are today.

To do that, the lender must run a test assuming rates were two percentage points higher than they are right now, and see if borrowers would be able to pay off the loan.”

(Pete Evans, CIBC News, December 05, 2017 – READ THE FULL ARTICLE HERE)

What happens if you are PURCHASING a home?

If you were planning a down payment of less than 20% of the down payment, the new rule changes will not affect your situation. You already have your own stress test; it’s been in place the better part of a year.

If you are buying a home, and you plan to put down at least 20% of the purchase price, the changes could reduce your purchasing power by 20% or so.

If you have already purchased a home and the closing date is within 120 days of the mortgage approval you have in hand — you should have nothing to be concerned about. You are approved and that will not change.

Thinking about REFINANCING your home?

If you are contemplating refinancing your home, and you worry the stress test will adversely affect you, it would be prudent to have your application submitted and approved in December, before all mortgage lenders comply with the new rules.

Even if your refinance closing date is in early 2018, you will be fine.

Still SHOPPING but have not found the right home yet?

If this is you, you want a formal pre-approval!

You should work with a mortgage broker or bank who will pre-approve you under the current rules, and provided you end up buying a home within 120 days of the pre-approval, will honour the terms pre-stress test rules.

I view the early part of 2018 as a buying opportunity. Now of course, things can change quickly, but if they don’t, we may be thankful — we have been patiently waiting for the right buying climate for quite some time.

Financial Literacy Leader of the Year Award 2017 Crest
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