What is happening to the stress test on April 6, 2020?
It was announced this week that the current stress test is no longer going to be based on the benchmark interest rate (which is the average of the big banks posted rates) and currently at 5.19%. Instead, starting on April 6, 2020 homebuyers will now be stress-tested on the higher of the rate they are being offered on their mortgage + 2% or the weekly median 5 year insured mortgage rate (which will be posted weekly)
What is the good news?
As of April 6, 2020 clients will have a little more buying power. We expect that they will be able to purchase about 2-5% more than they can now depending on what interest rates do. This should make for an even busier spring market than we currently anticipate.
What is the bad news?
The new stress test calculation could change week to week. So for clients who are purchasing at the very top end of their budget we will have to keep a close eye on the rates & qualification. This will continue to be the same with us that if we have the clients file all ready to go then if you find a property you want to offer on you can always send us the MLS ahead and we can evaluate the specifics of that property with the stress rate at that time.
For clients who are purchasing with over 20% down we still have access to credit unions who can qualify clients at their contract rate which will approve them higher than what these new changes can do.
What will the numbers actually look like?
Based one today’s rates it is likely that the new stress test rate would be around 4.89% so if a client had $80k in income, no debts & based on average home expenses would see a $15k-$20k increase in their maximum approval amount.
What is the truth?
That even though Canadians are getting a 2-5% increase in their purchasing power it is still important to remember that those same Canadians had their buying power 35-40% of their purchasing power taken away Jan 1, 2018. So while this is a step to make things a little easier, it isn’t the significant impact that some people may think when hearing the initial press releases.