Effective April 6, 2020, Canadians expect to see changes in the "Stress test"
These changes will impact anyone getting an insured mortgage, those putting down less than 20 per cent on a new purchase.
What is changing?
Right now people getting insured mortgages must prove they can afford a payment based on the benchmark five year posted rate. The Bank of Canada calculates this rate from typical big bank rates and it’s currently sitting at 5.19 per cent.
As of April 6 2020, a new benchmark rate will be used. It’ll be based on the country’s median five-year fixed insured mortgage rate, plus two per cent. If it were in existence today, it would be about 4.89 per cent, says the Department of Finance. That’s 30 basis points less than the current stress test rate.
What does it mean for you?
1. Up until now the banks have determined the benchmark rate which has in essence blocked many thousands of people from getting the best mortgage rate or even qualifying for mortgage at all.
2. It’s good for the economy!
3. Will home prices rise?
Assuming rates stay the same by April, a 30-bps reduction in the stress test would give most borrowers upwards of three per cent more buying power. This wont send home prices skyrocketing but again, more people being able to qualify means that technically more houses should sell and we should see a slight uptick in prices.
4. More purchasing power!
With economists predicting a Bank Of Canada rate cut in the near future, this should bring down interest rates which in turn will bring down the qualifying rate. If this does happen the average Canadian entering the real estate market should be able to qualify for more then they currently do giving them more buying power.
All things aside, as a home owner and real estate investor myself any positive news such as this, especially for Albertan's I see as a good thing!