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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 home sales activity improves in June
Statistics released today by The Canadian Real Estate Association (CREA) show national home sales were up from May to June 2018. Highlights: National home sales rose 4.1% from May to June. Actual (not seasonally adjusted) activity was down 10.7% from June 2017. The number of newly listed homes eased 1.8% from May to June. The MLS Home Price Index (HPI) in June was up 0.9% year-over-year (y-o-y). The national average sale price edged down 1.3% y-o-y in June. National home sales via Canadian MLS Systems rose 4.1% in June 2018 compared to May. While this marks the first substantive month-over-month increase this year, sales remain well down from monthly levels recorded over the past five years. More than 60% of all local housing markets reported increased sales activity in June compared to May, led by the Greater Toronto Area (GTA). By contrast, sales in British Columbia continue to moderate. Actual (not seasonally adjusted) activity was down almost 11% compared to June 2017. Sales marked a five-year low and stood almost 7% below the 10-year average for the month of June. Activity came in below year-ago levels in about two-thirds of all local markets, led overwhelmingly by those in the Lower Mainland of British Columbia. This years new stress-test on mortgage applicants has been weighing on homes sales activity; however, the increase in June suggests its impact may be starting to lift, said CREA President Barb Sukkau. The extent to which the stress-test continues to sideline home buyers varies by housing market and price range. All real estate is local, and REALTORS remain your best source for information about sales and listings where you live or might like to in the future, said Sukkau.
Bank of Canada raises overnight rate target to 1 ½ per cent
The Bank of Canada today increased its target for the overnight rate to 1 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1 per cent. The Bank expects the global economy to grow by about 3 per cent in 2018 and 3 per cent in 2019, in line with the April Monetary Policy Report (MPR). The US economy is proving stronger than expected, reinforcing market expectations of higher policy rates and pushing up the US dollar. This is contributing to financial stresses in some emerging market economies. Meanwhile, oil prices have risen. Yet, the Canadian dollar is lower, reflecting broad-based US dollar strength and concerns about trade actions. The possibility of more trade protectionism is the most important threat to global prospects. Canadas economy continues to operate close to its capacity and the composition of growth is shifting. Temporary factors are causing volatility in quarterly growth rates: the Bank projects a pick-up to 2.8 per cent in the second quarter and a moderation to 1.5 per cent in the third. Household spending is being dampened by higher interest rates and tighter mortgage lending guidelines. Recent data suggest housing markets are beginning to stabilize following a weak start to 2018. Meanwhile, exports are being buoyed by strong global demand and higher commodity prices. Business investment is growing in response to solid demand growth and capacity pressures, although trade tensions are weighing on investment in some sectors. Overall, the Bank still expects average growth of close to 2 per cent over 2018-2020.