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What are the new mortgage rules and stress test in Canada? (and impacts to your home buying potential)

“Always pick your yard based on your Summer lifetstyle.”


February 15, 2018 - Karl Yeh

"As of January first, 2018, the stress test now applies to everyone. It doesn't matter if you're putting 20% down or less than 20% down, everyone has to kind of qualify within your stress test or whatever the posted rate is plus two. The reason why it was called a stress test 'cause the banks want to see if interest rates ever did rise to a certain level, people could actually afford their payments."

Wondering about the new Canadian mortgage rules and accompanying stress test for 2018? How does it impact your ability to buy a home? In this episode, we review the new rules, explain what the stress test is and how impacts future homeowners. We also discuss the future of mortgage rates. 

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Karl Yeh:

So, hi everyone.

Welcome to another edition of Homebuyer's School.

Today, I'm joined by  Mujtaba Syed, Mobile Mortgage Specialist with TD Canada Trust. 

We have a really great episode today, because we're talking about mortgage rates, and specifically the question we're going to answer is:

What are the new mortgage rules in Canada? And mortgage stress test?

So, Mo, what are those new mortgage rules? But I've also heard that they've changed from the past. [00:00:30]

Can you explain a little bit more?

Mujtaba Syed:                

Yeah, absolutely.

So the changes actually came into effect last year for people who were putting less than 20% down.

Someone who was actually going through a CMHC insurance or Genworth insurance which we consider default insurance so what was put in place was something called a stress test.

The reason why it was called a stress test 'cause we wanna see if interest rates ever did rise to a certain level, people could actually afford their payments.

As of now, [00:01:00] as of January first, 2018, that stress test now applies to everyone.

It doesn't matter if you're putting 20% down or less than 20% down, everyone has to kind of qualify within your stress test or whatever the posted rate is plus two.

If rates today for example are 3.34, it could be 5.34 or the posted rate whichever is greater. 


So, are you saying there was no stress test before these new rules came out?

Mujtaba Syed:                

Correct, yeah.

So, prior [00:01:30] to this there was no stress test.

A lot of people could get away with just getting a five or fixed rate at the Bank of Canada and the bank and OSFI (Office of the Superintendent of Financial Institutions) was okay with that saying at least it was fixed for a five year term you were okay to qualify at that five year rate.

For example, we've heard some rates that have been in the past historically low rates so if a rate was 2.59 for five years, a lot of people at that time were qualifying at 2.59 for their mortgage.

Then as soon as the stress test came [00:02:00] up it became almost double for qualifying so it dropped a lot of people's purchasing power.

How does the new rules affect future homeowners?

Karl Yeh:                          

I really wanna explain, have you explain that a little bit more in terms of maybe not so much the numbers specifically, but more,so what exactly do home buyers have to understand now, the rules beforehand and going forward.

Mujtaba Syed:                

Yeah. Absolutely.

So, the rules going forward is that it is going to [00:02:30] be a lot harder to qualify for that perfect home that you wanted.

It could actually bring you down to a certain level because you do have to qualify at the highest posted rate that the bank is actually, that's their posted rate.

If you can qualify for that, you can actually get any rate that you want and it just kind of determines your purchasing power, like, what kind of house you can afford.

If prior to the rules, you could afford a house for let's say, 450,000 that would considerably drop a lot less now.

It could drop down to 400,000 determining [00:03:00] on or depending on whatever your situation is. It could be a lot different today.

How to finance your home

Karl Yeh:                          

Where do you think mortgage rates are headed. Do you see them continually rising?

Mujtaba Syed:               

It's anyone's guess, but, as what we've seen previously, mortgage rates are definitely on the rise right now.

We've seen prime rates going up three times as of last year and we've seen mortgage rates considerably go higher as well.

The trend is definitely [00:03:30] towards going upwards for sure.

Karl Yeh:                          

Do you have anything else you wanna discuss in terms of the new mortgage rules or the stress test?

Mujtaba Syed:                

Yeah, absolutely.

So, I would actually just really recommend sitting down with your lender or mortgages specialist and just discussing where your qualification stands as of today with the new rules.

Prior you might have gone to pre-approval previously and if that's the house you were shopping around for in that price range, that would have drastically changed as of today.

So I would sit [00:04:00] down, get a new financial picture of you guys's financial situation and put in place with an application and then see if that changes with your guys's plan of purchase of getting into a different type of home or different price range all together.

Karl Yeh:                          

Perfect, well thank you very much, Mo.

Thank you very much everyone for joining us. 

Remember, please watch our other videos on how to get mortgage pre-approvals and everything related to mortgage pre-approvals in the link above and at the end. [00:04:30] Thank you very much for joining us.


Your turn:

Let us know if you have additional mortgage questions or home buying questions that we can answer by submitting them in the comments section below. 

Homebuyer's School publishes new content weekly so subscribe or check back regularly for the latest information, strategies and tips from homebuying experts. 

About Mujtaba Syed:

Mujtaba is an experienced mobile mortgage specialist with a demonstrated history of working in the banking industry. Skilled in Negotiation, Commercial Lending, Banking, Sales, and Credit Analysis. Strong product management professional.

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