With the new mortgage rules having taken effect in January 1st of this year, alongside the growing housing prices, household debt, and higher interest rates, another mortgage stress test benchmark has also arrived in Canada.
If you are thinking about applying for a mortgage in Vancouver, here are some details about the new benchmark that you will want to know.
First and foremost, the newest rate that mortgage borrowers will need to qualify for now sits at 5.34%, up 20 points from 5.14%. In comparison, this rate sat at just 4.64% last May. This rate of course reflects the conventional 5 year rates set by the big banks: Scotia bank, BMO, CIBC, RBC, and TD.
Ultimately, the purpose of the stress test is to allow lenders to be able to identify the level of mortgage that a buyer is able to afford and this is tested under certain worst-case scenarios.
For example, a borrower’s ability to continue to make their mortgage payments, should the interest rate suddenly increase is one such criteria that is tested. Another consists of your ability to continue to pay off your mortgage should you lose your job or loss of income, etc.
Well, if the January mortgage rule changes were implemented to help promote more stability in the real estate market, it certainly seems like this is the case once again.
So, just how will this increase affect you if you are looking to buy a home in the Metro Vancouver area?
Well it is no surprise that buyers in this region have seen extremely high prices and a fast-paced market. For Vancouverites, this means that regardless of the size of the mortgage they require, they will need to qualify for a mortgage at a minimum rate of 5.34%.
Since, Vancouver’s home prices have still remained high despite other market interventions, like the foreign buyers tax, perhaps the newer stress test benchmark will help buyers out in the long run.
All in all, first time home buyers as well as those looking to renew their mortgage with a new lender are likely to both significantly feel this change. With the reality being that Vancouver residents and residents all over Canada for that matter are relying heavily on mortgages to buy their homes, this new rate increase may impact their ability to continue to pay their mortgage and most certainly mean that securing a first time mortgage may be more challenging.
With household debt levels still remaining high and higher interest rates this may create even more of a financial crunch for many Canadian borrowers. On the other hand however, perhaps we can also view this latest stress test increase not as an enemy for borrowers, but as an ally to help combat this growing national debt.
Hopefully with time, the housing market in the metro-Vancouver area will become more affordable for home buyers.
Until then it is always good to be informed and make sure you are as prepared as possible to take on a mortgage under the new stress test parameters. This is the best way to be a happy home owner!