After months of reviewing the current mortgage stress test, our Federal Government announced on February 18, 2020 that effective April 6, 2020 there will be some changes. This change will be welcomed as the pendulum continues to swing in the direction of easing for homebuyers to enter the market after years of swinging in the opposite direction.

Here are what the changes are, what they will mean to potential borrowers:.

Currently:

Insured Mortgage Borrowers (those putting less than 20% down) must qualify at the Bank of Canada Benchmark rate which is 5.19% today.

Based on this most borrowers are qualifying at 5.19% which is typically 2.3% higher than the average contract rate of 2.89% offered on the market.

Changes:

As of April 6, 2020 these same borrowers will qualify at a weekly average of insured mortgage rates +2%. The qualifying rate will be reset by the bank of Canada each Wednesday and will be applicable as of Monday the following week. The rate will be determined using an average of all interest rates being submitted to the 3 insurance providers.

Impacts to borrowers:

Here’s an example of a borrower today vs. April 6

* estimating property taxes of $3,500 and potential maintenance fee’s of $400 per month

As you can see from the illustration above the expected impact is about a 4% increase to purchasing power.

Impact to Real Estate Industry:

1. An increase in purchasing power will often have an increase on the market, driving prices upwards. If borrowers are able to qualify for more, they are typically inclined to spend more on housing. This means that we may see additional growth in the real estate market in the coming months from both a price standpoint as well as increased numbers of borrowers. This is potently good news, especially those that may be considering selling in the near future.
2. Psychological Impacts: whenever there are rule changes there are impacts made to the psyche of the customer. Here we expect two:
• Excitement: the possibility of increased qualification and the ability to enter the market. This will spur a lot of inquiry and interest from those that have been interested but felt as though they were on the sidelines.
• Wait and See: this is a common impact of any rule change. Home buyers want to wait for the rule change to take place and see what their options are at that point . Based on the above point of potential market increase this may open opportunity for those ready, willing and able to enter the market today and not wait.

Looking forward to a great spring market!