The federal elections are coming. So this likely will just be the start..
The interest used for the stress test in Canada’s mortgages has been decreased. This will make it slightly easier for Canadian citizens looking at financing for the purchase of a home.
The mortgage qualifying rate has now done a modest drop to 5.19% from 5.34%.. The rate is derived from the most frequently occurring five-year, fixed posted rates at Canada’s Big 6 banks. (The actual rates in which a purchaser pays are much lower that 5.19%, and it is known that discount lenders will offer 5 year fixed rates as low as 2.47%)
The qualifying rate (stress test interest rate) had actually progressively increased several times during 2017 and 2018 as the Bank of Canada raised its key interest rate, and as bond yields head higher.
According to the Globe and Mail, “there’s been a notable shift in lending conditions as many central banks across the globe look to ease policies. Moreover, Canada’s five-year bond yield, which influences the direction of five-year fixed-rate mortgages, has tumbled this year. As a result, those mortgage rates have plunged roughly 70 basis points, according to a recent research note from BMO Nesbitt Burns.
The stress tests are used to ensure homeowners and prospective buyers could continue to afford their mortgage payments at higher interest rates, and apply only to federally regulated lenders. The Department of Finance first imposed a stress test on insured buyers, or those who typically make a down payment of less than 20 per cent of the home’s purchase price, starting in the fall of 2016. Canada’s banking regulator followed suit with a similar test on uninsured buyers, which went into effect in 2018.
The second test is widely credited as one of the factors that has weighed on resale activity in Canada’s real estate market.”
With this new lowered qualifying rate you will of course see an impact on a home buyer’s purchasing power.
For a home buyers using a 20% down payment, of which earns $50,000 a year, the lower rate will allow them to afford a home that is roughly $4,000 more expensive, according to calculations from RateSpy.com. For those with a little higher salary who are earning $100,000 a year, with the same 20% down payment, they can buy a home about $8,300 pricier.