What’s happened since the mortgage stress test was enacted in January 2018?

The Implementation Of The Mortgage Stress Test In Canada

On January 1st, 2018, new federal guidelines came into effect requiring that Canadians getting, renewing or refinancing undergo a stress test to prove they could afford their home in the event interest rates were to rise substantially above their current rate.

The ‘stress test’ rate depends on whether or not you need to get mortgage insurance (if you put less than 20% down, you are required to get mortgage insurance). This regulation affects Canada’s six ‘big banks’, but some of the provincially regulated lenders are voluntarily complying.

According to the Canadian Real Estate Association, purchasers who previously qualified for the average detached benchmark home in a market like Calgary in December 2017 would need to have saved an additional $76,000 to purchase that same home in January 2018 as a result of the new mortgage rules.

As house prices and markets vary wildly across the country, there are some who believe there is a need to ‘regionalize’ the mortgage stress test, or tailor it to the needs of the region. In ‘hot’ markets such as Vancouver and Toronto, the stress test works to minimize risk. In Alberta, however, this regulation could present unintended consequences such as a further slow-down of an already struggling economy.

How has the Mortgage Stress Test Impacted Canadians?

According to Canadian Mortgage Trends, 100,000 Canadians have been prevented from buying a home by the stress test.

“By the time of the next federal election in October 2019, about 200,000 Canadian families will have encountered sharp personal disappointment as the direct result of this pair of policies (they will either have significantly reduced their housing expectations in order to obtain financing, or been entirely prevented from buying a home),” according to Will Dunning, Chief Economist, Mortgage Professionals Canada.

If you are considering your first home purchase, or are refinancing or renewing your mortgage, you will need to determine if and how you are affected by this regulation.

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To find out more about how our mortgage loan insurance policies can help protect your family’s financial future and your home, contact our licensed agents today at 1-844-974-2020 or fill in our online contact form.

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