How Will the June 1 Mortgage Stress Test Change Affect You?

Starting June 1, homebuyers in Canada will have a tougher time applying or renewing their mortgage. The Office of the Superintendent of Financial Institutions (OSFI) has decided to increase the mortgage stress test to 5.25%, up from the previous 4.79%. A mortgage stress test is a stringent set of rules banks use to determine if you qualify for a mortgage and the maximum amount you are allowed to borrow. It requires homebuyers to qualify for a mortgage at a higher theoretical rate than they will actually pay to protect them from low-interest rates. The mortgage stress test changes are both good and bad news for you. 

Who Does the Change Impact?

The mortgage stress test change is OSFI's attempt to cool down Canada’s hot competitive housing market. The increased rate applies to uninsured mortgages and borrowers with more than 20% down payment and to borrowers with less than 20% down, otherwise known as an insured borrower. The changes effect all home buyers who did not have an approved mortgage before June 1 2021. 

Benefits Of the Changes

The benefits of the increased mortgage stress test is it will reduce price pressure by cutting down the number of people who will be able to bid as much for houses. The issues homebuyers are facing right now are rising home prices, low housing supply, competitive bidding, and high indebtedness. The changes are to ensure the Canadian housing market stays affordable and you can afford to pay your mortgage when interest rates eventually increase. The government is hopeful the mortgage stress test changes will protect buyers and decrease financial risk.

Disadvantages Of the Changes

There are a few disadvantages of the mortgage stress test changes. It is expected to cut buying power by 4-4.5%. For example, this means that it would reduce your maximum purchase price from $418,500 to $400,000. That is a big difference when you’re a first-time homebuyer and you still need to compete in the hot real estate market. Although the mortgage stress test change will relieve some of the pricing pressure, it isn’t the only factor determining the strength of the housing market. There is still a lot of demand and interest rates are still low. Current homeowners who need to renew their mortgage only will need to pass the stress test if they switch lenders. However, this will still affect them because they can’t really shop for a better rate or negotiate with their current lender.

There is no way to get around the new mortgage stress test change since it is mandatory in Canada’s big banks and other lenders use them voluntarily to reduce their risk. However, there are few ways you can increase your housing affordability. In order to qualify for a larger mortgage, you can save more, pay down your other debts, or get a co-signer. 

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If you have questions or would like to discuss the mortgage stress test change, please give me a call at 306-552-7047 or fill out my online contact form.

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