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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.
Vancouver the main driver of the Composite in December
Vancouver the main driver of the Composite in December says Teranet and National Bank of Canada Without Vancouver, the Composite index would have declined for a fourth month in a row. The strength of Vancouver’s index is consistent with continued tight home resale market conditions. Toronto’s index declined for a fifth consecutive month, but the unsmoothed index (see note on methodology on next page) rose for a second month in a row (middle chart). Unless the unsmoothed index relapses in January, the sequence of declines in the smoothed index should then be interrupted. However this improvement is likely to prove temporary, as it might have resulted from buyers rushing to avoid the new bylaws on qualification for an uninsured mortgage (implemented in January 2018). This view is supported by the increase in Toronto home sales in November and December compared to previous months (bottom chart). Therefore, a resumption of the downward price trend early this year cannot be excluded. Please click on the link below to access the full report: 201712 TNB monthly commentary
Bank of Canada increases overnight rate target to 1 1/4 per cent
The Bank of Canada today increased its target for the overnight rate to 1 1/4 per cent. The Bank Rate is correspondingly 1 1/2 per cent and the deposit rate is 1 per cent. Recent data have been strong, inflation is close to target, and the economy is operating roughly at capacity. However, uncertainty surrounding the future of the North American Free Trade Agreement (NAFTA) is clouding the economic outlook. The global economy continues to strengthen, with growth expected to average 3 1/2 per cent over the projection horizon. Growth in advanced economies is projected to be stronger than in the Banks October Monetary Policy Report(MPR). In particular, there are signs of increasing momentum in the US economy, which will be boosted further by recent tax changes. Global commodity prices are higher, although the benefits to Canada are being diluted by wider spreads between benchmark world and Canadian oil prices. In Canada, real GDP growth is expected to slow to 2.2 per cent in 2018 and 1.6 per cent in 2019, following an estimated 3.0 per cent in 2017. Growth is expected to remain above potential through the first quarter of 2018 and then slow to a rate close to potential for the rest of the projection horizon.