New Mortgage Stress Test for Insured and Uninsured Mortgages Effective June 1st

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New Mortgage Stress Test for Insured and Uninsured Mortgages Effective June 1st

The Office of The Superintendent of Financial Institutions OSFI has announced that the new mortgage stress test rules will take effect on June 1st for insured and uninsured mortgages. Homebuyers looking to buy their first home were also given a blow by Deputy Prime Minister and Finance Minister Chrystia Freeland who said that anyone putting less than 20 percent down on a home purchase must qualify at the mortgage contract rate plus 2% or 5.25 percent (whichever is higher).

Under an initial proposal made in April, only the uninsured (conventional) mortgages were to be affected by the new stress test. Ben Gully, the OSFI Assistant Superintendent of Regulation said in a release that “in a complicated and sometimes volatile housing market, the need for sound mortgage underwriting cannot be underestimated. The new rate will help support financial resilience should economic circumstances change, while our commitment to review the qualifying rate at least annually will contribute to continued confidence in the Canadian financial system.”

What will the new stress rate be?

These changes are expected to increase the minimum qualifying rate by .50 percent, from the existing 4.79 percent, and reduce the borrowing power by about 4 percent to 5 percent.

How will the new stress test affect my mortgage?

If you currently qualify for a $1,000,000 today, on June 1st you will qualify for a mortgage of $955,000 or $45,000 less or 4.79% less. Mortgage shoppers should ideally contact a mortgage broker before making an offer as that could materially affect their purchasing power.

The market could potentially see some homebuyers and homeowners looking to refinance their mortgage scrambling to get a mortgage approval prior to May 31st to avoid getting caught up with the upcoming changes. Mortgage approvals are guaranteed between 90 and 120 days depending on the lender so getting your mortgage approved before the stress test implementation will help you qualify for more.

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