SARAH COLUCCI, MORTGAGE BROKER
  • Home
  • ABOUT ME
  • Why Use A Mortgage Broker
  • APPLY ONLINE
  • PRODUCTS
    • BEAT THE BANKS
    • WHY INVEST IN REAL ESTATE
    • FIRST-TIME HOME BUYER PRE-APPROVALS >
      • FIRST-TIME HOME BUYER TAX CREDIT
    • SELF-EMPLOYED MORTGAGES
    • MORTGAGE REFINANCE >
      • Prepayment penalties
    • SPOUSAL BUYOUTS
    • INVESTMENT PROPERTIES AND RENTALS
    • BRUISED CREDIT
    • PRE-APPROVALS
    • NEWCOMERS
    • DEBT CONSOLIDATION
    • HOME EQUITY LINE OF CREDIT
    • PURCHASE PLUS IMPROVEMENT PROGRAM
    • MORTGAGE RENEWALS >
      • New Mortgage Rules and Mortgage Renewals
    • SECOND MORTGAGE LOANS
    • LESS THAN 20% PROPERTIES
    • PERSONAL LOANS
    • DOWN PAYMENT
  • CONTACT ME
  • PRIME RATE CANADA
  • CLOSING COSTS
  • DOCUMENTS REQUIRED FOR MORTGAGE FINANCING
  • MORTGAGE QUESTIONS
  • MORTGAGE DICTIONARY
  • MY LENDERS
  • MISSION
  • MORTGAGE NEWS
  • MULTIMEDIA & APPEARANCES
  • GOVERNMENT MORTGAGE RULES
  • MORTGAGE TIPS
  • TESTIMONIALS
  • HOUSE HUNTING CHECKLIST
  • MORTGAGE WITH ME

Mortgage Blog

Breaking Down The New Mortgage Stress Test, Announced February 18, 2020.

2/19/2020

0 Comments

 
Picture
By: Sarah Colucci

​Let’s begin this blog by admitting that since the Federal Government announced the new changes to the Mortgage Stress Test on February 18 - which will come into effect in April, mortgage brokers have yet to fully appreciate how the changes will affect mortgage applications or pre-approvals. 

Currently, any approved mortgage through either a financial institution, mortgage finance company, or credit union must be “stress-tested” using the "contract rate plus 2 percent or the current five-year benchmark rate of 5.19 percent, whichever is greater." 

It's important we remember that the reasoning behind the creation of the stress test in the first place was to protect consumers from payment shock in an increasing-rate environment and, of course, the financial sector from mortgage default arising from such shock.  However, since interest rates have declined due to various global economic tensions and the novel Coronavirus, the benchmark rate of 5.19 percent has unfortunately, become the default rate for qualification purposes, making the mortgage process highly unrealistic. 

In fact, economists agree that interest rates are only likely to go lower, which is why there has been mounting pressure on Ottawa to make changes that take this reality into consideration.
​
The good news? The lobbying has paid off and the Government has taken action.  The bad news? There is still a stress test with tough qualifying measures. 

Although the test still requires borrowers to qualify at an inflated interest rate, the Government has changed the stress test formula. As of April 2020, the stress test will be calculated using the “median weekly insured rate, plus 2 percent", removing the  "or the five-year benchmark rate, whatever is greater" clause.

The Government has also changed the stress test to include the "insured" weekly rate which signifies the interest rate for mortgages needing to be insured through one of the three high-risk mortgage insurance companies and can include high-ratio mortgages (for those with less than 20 percent down payment) or applications through lenders that back-end insure their mortgages for the purpose of selling them within secondary markets. The insured rate also applies to a maximum 25-year amortization period. 

The confusion arises when it comes to qualifying borrowers... 

Hypothetically, if a borrower is declined for a mortgage from April onward because they don't qualify using the "median weekly insured rate" plus 2 percent, they can still be approved if the weekly rate drops at a later date,  which creates obvious questions about how borrowers will be serviced at the highest level since rates change and timelines play a huge role in qualifying, and also how the Government will ensure it's protection of the financial sector and borrowers of payment shock.

Further, a borrower may be pre-approved while they are house shopping, however, if the weekly median insured rate changes when they finally purchase a property, technically, they may have to re-qualify using the current rates at that time. 

We are hoping the kinks will be ironed out before April so we can pass this information on to borrowers.

The good news is that with low interest rates, and the removal of the five-year benchmark rate from the qualifying criteria, borrowers can now qualify for a little more in mortgage (approximately 5 percent) - however, only if rates stay low.


Do you have mortgage questions?
Feel free to call or write.

Sarah A. Colucci
Mortgage Agent
Mortgage Edge, Broker 10680 
Direct: (647) 773-4849
Email: sarah.colucci@coluccimortgage.com

RSS Feed

0 Comments



Leave a Reply.

    By: Sarah Colucci

    Archives

    November 2020
    October 2020
    September 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    February 2019
    January 2019
    December 2018
    August 2018
    May 2018
    April 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017

    Categories

    All

    RSS Feed

CONTACT ME

Let's get started today.



Address

411 Queen St. 
Newmarket, ON
​L3Y 2G9

Second Location: 
Tottenham, Ontario 

Head Office: 
15 Wertheim Court, Suite 210
Richmond Hill, Ontario 
L4B 3H7 

Sarah A. Colucci, Mortgage Agent Lic. M14000929
Mortgage Edge, FSCO Lic. 10680

Telephone

Direct: 647-773-4849
​
Email: sarah.colucci@coluccimortgage.com
Picture
  • Home
  • ABOUT ME
  • Why Use A Mortgage Broker
  • APPLY ONLINE
  • PRODUCTS
    • BEAT THE BANKS
    • WHY INVEST IN REAL ESTATE
    • FIRST-TIME HOME BUYER PRE-APPROVALS >
      • FIRST-TIME HOME BUYER TAX CREDIT
    • SELF-EMPLOYED MORTGAGES
    • MORTGAGE REFINANCE >
      • Prepayment penalties
    • SPOUSAL BUYOUTS
    • INVESTMENT PROPERTIES AND RENTALS
    • BRUISED CREDIT
    • PRE-APPROVALS
    • NEWCOMERS
    • DEBT CONSOLIDATION
    • HOME EQUITY LINE OF CREDIT
    • PURCHASE PLUS IMPROVEMENT PROGRAM
    • MORTGAGE RENEWALS >
      • New Mortgage Rules and Mortgage Renewals
    • SECOND MORTGAGE LOANS
    • LESS THAN 20% PROPERTIES
    • PERSONAL LOANS
    • DOWN PAYMENT
  • CONTACT ME
  • PRIME RATE CANADA
  • CLOSING COSTS
  • DOCUMENTS REQUIRED FOR MORTGAGE FINANCING
  • MORTGAGE QUESTIONS
  • MORTGAGE DICTIONARY
  • MY LENDERS
  • MISSION
  • MORTGAGE NEWS
  • MULTIMEDIA & APPEARANCES
  • GOVERNMENT MORTGAGE RULES
  • MORTGAGE TIPS
  • TESTIMONIALS
  • HOUSE HUNTING CHECKLIST
  • MORTGAGE WITH ME