Satbir Bhullar - Mortgage Consultant in Abbotsford

Delivers Emergency Rate Cut by .50%; Stress Test Changes coming on April 6 are Suspended Insured mortgage stress test—which was to take effect The federal government had planned to change the formula for the benchmark qualifying rate, which would have reduced the stress test from today’s rate of 5.19% to 4.89%. A similar change for the uninsured mortgage stress test being considered by the Office of the Superintendent of Financial Institutions (OSFI) pending industry consultations has also been put on hold.

But first, a quick recap of what’s changing come April 6, 2020: Current stress test rate for insured mortgages (typically those with less than 20% equity): 5.19% New stress test rate (if it were in effect today): ~4.89% Based on a rate equal to the weekly median 5-year fixed insured mortgage rate plus 2%. the new formula for stress testing insured mortgages will help many buyers who are currently just on the cusp of being able to pass the stress test. Consider that the current stress test rate of 5.19% is a full 283 basis points higher than the lowest available insured mortgage rate on the market.

While Canadians agree (6.52 out of 10) with the following statement, “interest rates have meant that a lot of Canadians became homeowners over the past few years who probably should not be homeowners,” the level of agreement has fallen from the long-term average of 6.93. While this isn’t necessarily alarming, given that most people aren’t imminently buying a house and don’t need to be familiar with the rules, Dunning noted, “this limited awareness is also present among people who expect to buy a home during the coming year: there is a risk that some buyers could have unexpected difficulty in obtaining the financing they need. However, those surveyed also agree (6.62 out of 10) that the stress tests “will result in more people having to turn to more expensive mortgage options from lenders. There was also a feeling that it would “result in more Canadians being worse off overall at the end of their mortgage” (6.15 out of 10) and would “result in more Canadians purchasing homes that they can’t afford”(6.72 out of 10).

Five months ago the Liberal government unveiled the First-Time Home Buyer Incentive, a new initiative aimed at easing affordability for first-time homebuyers. To recap how the program works, participants must put down at least 5% of the home’s value with their own money, while the government (through the Canada Mortgage and Housing Corporation) would contribute an additional 5% of the down payment if the purchase is of an existing home, or 10% if it’s a new build. It’s only available to first-time buyers with a household income under $120,000 Participants must have a minimum 5% down payment Industry experts say it will be interesting to see the actual participation rate, given that a similar program launched by the B.C. government in 2016—the Home Owner Mortgage and Equity Partnership—was cancelled due to a low participation rate.