You may have heard about the new "stress test" and wondered what it's all about. To put it simply, the stress test is new mortgage rules being introduced by the federal government. This rule is a new change in the qualifying rate for uninsured or "conventional" mortgages. This test applies to buyers putting a down payment of over 20% of a home's value and don't need mortgage insurance.
This means that buyers will have to prove they can continue to afford their mortgage payments if interest rates go up 2% higher than the mortgage rate they negotiated. Buyers need to be able to pass this stress test to qualify for a conventional mortgage. The government will implement the new mortgage rules January 1st 2018.
Want an example?
Say that there's a family with an annual income of $100,000. Currently, if they made a 20% down payment at a five-year mortgage rate of 3.09% amortized over 25 years, they can afford a home worth $706,692. Under the new rules, this family will need to qualify at the greater of the benchmark rate (currently 4.89%) or the contract rate +2% (that means 3.09% + 2% stress test = 5.09%). With this in place, they can would only be able to afford a home worth $559,896. This is a difference of $146,796.
Did this explanation help?
Let us know if you have any questions about the stress test. We want to make sure you feel comfortable and that you fully understand how this new mortgage rule works. Contact us at 604-936-1111 or email at firstname.lastname@example.org if you want any clarification or help understanding how this test could affect you.