Over the last few years, anyone looking for a mortgage in Brampton and the GTA has been introduced to the “stress test”, which was put in place to ensure that homeowners can handle an increase in rates. It means that you must qualify for payments that are far above what you will actually pay, something that many find frustrating.
The good news is that the Canadian government has decided to ease up on the stress test.
Effective April 6, anyone applying for an insured mortgage (less than 20% equity) will see a slightly fairer stress test used. It will now be based on the median five-year fixed insured mortgage rate, plus two percentage points, and will be established every week. This makes the stress test more in line with rates that people are borrowing at and will increase purchasing power by approximately 4%.
For mortgages that don’t need default insurance (more than 20% equity), it is expected that the qualifying rate will be similar and change to the greater of:
- Your actual contracted mortgage rate, plus 2%; or
- The new insured stress test rate described above.
This does however keep the stress test for uninsured mortgages at a slightly tougher hurdle.
You can get a mortgage with NO stress-test if you have more than 20% equity!
Some of my lenders allow you to qualify for a mortgage without the stress test, which is welcome news for many homebuyers and those who need to refinance. There is a rate premium attached, which means it’s an option only for those that can’t qualify under the stress test. There are some definite advantages, which may include lower rates than B or private lenders, no fee and 5-year terms. If the stress test has been too tough a hurdle for your situation, please get in touch to discuss this option. Having access to multiple lenders and special products like this is one of my specialities.
What does this all mean?
The new stress test will make qualifying easier and increase your purchasing power. That is great news. If you can’t qualify under the stress test, I have options for you so please don’t feel discouraged. We are also in a declining rate environment which will further improve qualifying and the maximum mortgage amount you can qualify for, making this a great time to be buying a home in Brampton and the GTA. Please contact me at anytime.
