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Stressed About the Mortgage Stress Test?
*New Mortgage Qualification Guidelines* First of all, you might be asking yourself, What is a mortgage Stress Test and how does it affect me? A mortgage stress test was a measure put in place last October by the Federal Government, that would test a borrowers ability to make their mortgage payment at a higher interest rate - a five year fixe rate set by the Bank of Canada, which is referred to as the Canadian Benchmark Rate. the last several years, Canadians have experienced and become accustomed to record low interest rates. However, in anticipation that these low interest rates could not continue long term, the Government implemented a Mortgage Stress Test in order to protect a borrower from a future hike in interest rates. This was to prove that if interest rates were to increase, a borrower could still afford and maintain their household mortgage payment. Although this is no longer new news, the Stress Test is a topic that should be explored by anyone with a mortgage or planning to apply for one. One of the overall outcomes of last years implementation of the Stress Test was a decrease in the qualified borrowing limits for every consumer contributing less than 20% toward their down payment. This change affected all applications requiring mortgage insurance and reduced a buyers purchasing power by about 20%. For example, a buyer that was pre-approved and out shopping for a $450,000 home, now found that home was suddenly out of reach and a $360,000 purchase price maximum was their new reality. Over the course of this past year, we have seen some increase in interest rates but more importantly, stricter qualifying rules and less competition in the mortgage marketplace for many types of loans. With almost a year since the implementation of this initial Stress Test, the Canadian federal government being pleased with the result of this policy change, is now investigating the need for Stress Testing uninsured mortgage loans as well. Uninsured Mortgage Loans are mortgages with down payments greater than 20% of the purchase price. This expected announcement now means that even if you have 20%, 40% or more for a down payment, every mortgage will then have to qualify at the Benchmark Rate. This will change how mortgages will be qualified and approved and will again mean a reduction in purchasing power of approximately 20% for all the buying public, not just first-time home buyers. The Stress Test is used in qualifying for your mortgage before you buy, but what happens when your current mortgage comes to term.what options do you have? Do you have to renew with your current lender or are you able to move to a lower rate with another lender? Mortgage rates are currently climbing from our record lows in 2016, with Prime Rate already having increased by 0.75% this year; and an increase to fixed interest rates close to 1.00% over the last 60 days. Early planning for a new home purchase or a mortgage renewal could save you thousands of dollars in the future! It has never been a better time to work with an Accredited Mortgage Professional, our ability to provide choice, guidance, and support will help you make informed borrowing decisions.
Canadian Income Survey, 2016
Canadian families and unattached individuals had a median after-tax income of $57,000 in 2016. Median after-tax income increased from 2011 to 2014, but held steady in 2015 and 2016. The slower growth in 2015 and 2016 was associated with the resource price slowdown, which began in the second half of 2014. After-tax income is comprised of income from market sources and government transfers. Market income includes employment income, retirement income and income from investments, while government transfers include benefits to seniors, child benefits, Employment Insurance benefits, social assistance and other benefits. While growth in overall median after-tax income slowed in 2015 and 2016, there was also a significant increase in government transfer income. Median income from government transfers rose from $5,800 in 2014 to $7,400 in 2016. About half of this rise was due to increased child benefits, which became a larger source of income for families with children. In 2014, the median child benefit received by couple families with children were $2,500. This rose to $3,400 in 2015, and to $4,000 in 2016. For a lone-parent family, the median benefits rose from $5,100 in 2014 to $5,800 in 2015, and then to $6,400 in 2016.
Bank of Canada maintains overnight rate target at 1 1/4 per cent
The Bank of Canada today maintained its target for the overnight rate at 1 1/4 per cent. The Bank Rate is correspondingly 1 1/2 per cent and the deposit rate is 1 per cent. Global growth remains solid and broad-based. In the United States, new government spending and previously-announced tax cuts are anticipated to boost growth in 2018 and 2019. However, trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks. In Canada, the national accounts data show that the economy grew by 3 per cent in 2017, bringing the level of real GDP in line with the projection in the Banks January MonetaryPolicy Report (MPR). In the fourth quarter, GDP growth was slower than expected, largely due to higher imports, while exports made only a partial recovery from their third-quarter decline. The gain in imports mainly reflected stronger business investment, which adds to the economys capacity. Strong housing data in late 2017, and softer data at the beginning of this year, indicate some pulling forward of demand ahead of new mortgage guidelines and other policy measures. It will take some time to fully assess the impact of these, as well as recently announced provincial measures, on housing demand and prices. More broadly, the Bank continues to monitor the economys sensitivity to higher interest rates. Notably, household credit growth has decelerated for three consecutive months. The implications of the recent federal budget for the outlook for growth and inflation will be incorporated in the Banks April projection. Inflation is running close to the 2 per cent target and the Banks core measures of inflation have edged up, consistent with an economy operating near capacity. Wage growth has firmed, but remains lower than would be typical in an economy with no labour market slack. Inflation is fluctuating because of temporary factors related to gasoline, electricity, and minimum wages. In this context, Governing Council maintained the target for the overnight rate at 1 1/4 per cent. While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target. Governing Council will remain cautious in considering future policy adjustments, guided by incoming data in assessing the economys sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.