In January of 2018, the federal government brought in new mortgage rules yet again. The most significant change was the introduction of the mortgage stress test.
With banks offering rates far below their posted rates, in an already low interest rate environment, the federal government became concerned about the amount being borrowed by homeowners.
So home buyers now face the requirement of qualifying at a higher interest rate than what the buyer will actually pay.
You are now required to qualify at minimum at the Bank of Canada’s 5 year fixed rate, or 2% above whatever rate the bank is offering you, whichever qualification rate is higher.
Being forced to qualify at the higher stress test rate causes the principal portion of your monthly mortgage payment to shrink, lowering the maximum amount you’ll be allowed to borrow for your mortgage.
But the rate you’ll actually pay once you buy is the rate you are offered by your lender. Your monthly payments will calculated from this lower rate, not the stress test rate. As a result your monthly payments will be smaller too.
The stress test has been quite unpopular so the federal government has rolled out several new changes to make it easier to buy a home.
They are now offering a first time buyer’s credit of $5000, an increase in withdrawals from your RRSP to $35,000, and a new shared equity mortgage program from CMHC that rolled out in September of 2019. If you’re looking for mortgage info or help, my friend Gary Brown would be glad to help you out.