The new mortgage qualifying rules now require a minimum qualifying rate for insured and uninsured mortgages (those with a down payment of 20 per cent or more) to be the greater of the five-year benchmark rate published by the Bank of Canada (currently 5.14 per cent) or two per cent above the mortgage holder’s contractual mortgage rate. Typical contract rate today for a purchase with a 20 per cent down payment is 3.49 per cent which means you must qualify at a rate of 5.49 per cent. Regardless of your down payment or the equity you have in your home you are now required to pass the stress test with the major banks and monoline lenders.
While these changes were thought to be mainly felt by first time home buyers, existing home owners and repeat home purchasers with large down payments are finding themselves adversely affected by the new rules as well. What you qualified for last year is not the same as what you would now qualify for today with the new stress test. An existing home owner with annual income of $100,000 who purchased a home last year for $775,000 with a 20 per cent down payment/30 year amortization would today under the new stress test have their buying power reduced to $625,000 or lower. This mortgage would also require a 20 per cent down payment/30 year amortization.
It is so important to be aware and understand where you will now qualify before you make a major move to sell your home and look to purchase another. Even if you are looking to simply port this mortgage to another property you would have to qualify with the stress test to do so and may come up short. If you are looking to refinance your mortgage the stress test also applies. The exception is on renewal. If at renewal you opt to stay with your existing lender and accept the rate you are offered at renewal you presently are not required to pass the stress test.
Mortgage brokers have access to numerous lenders and not all lenders are required to perform the stress test procedure. There are options available to you and if you are interested in knowing where exactly you will qualify and what rate is available to you with or without the stress test we welcome your call. Any move in the housing market should always start with a pre-approved mortgage. Not only will a pre-approved mortgage guarantee you a rate for up to 120 days it will also provide you with the satisfaction and peace of mind in knowing exactly where your purchase ceiling is before you start the process.
Of Prime Interest is a collaboration of mortgage professionals and we welcome your questions. Trish Balaberde (250-470-8324) , Darwyn Sloat (250 -718-4118) and Christine Hawkins (250-826-2001).
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