The mortgage stress test hasn’t been in effect for very long but enough time has passed for us to examine its early impact. Enacted as of January 2018, Canadians applying for a new mortgage or refinancing an existing one had to prove their financial situations could withstand an interest rate hike.
This Government initiative was designed to protect lenders from defaults and borrowers from overextending themselves. It’s fair to say that the high prices and competitiveness of the GTA and Vancouver housing markets required this level of intervention.
Impact on the National Housing Market
All of Canada’s big banks instituted the stress test so there wasn’t a way around the rules. The result was that many people had to stay with their lender and buyers had to settle for a less expensive home.
There was an impact on inventory as fewer properties were put up for sale. This led to a seller’s market and higher average prices. For those who were looking to refinance, they most likely had to settle for a lower loan amount.
None of this is particularly bad. It was simply a shift in lending, which led to people being more cautious.
Best Chance at Passing
To pass a mortgage stress test, you should max out your down payment. This means getting as close to 20% as possible if not more. Also, if you feel as if a promotion or better paying job is around the corner, then it’s not a bad idea to wait until your household income is higher.
These rules roughly breakdown as $600 for $100,000 you borrow to purchase a home. If you think you can afford this then you are in good shape to get pre-approved. This is something to discuss with your lender as they can guide you through the entire process.
Talk to a Broker Today
Contact us to discuss your financial situation and to start the pre-approval process. We would be happy to answer your questions and give you a clear picture of what your future as a homeowner could look like.