"Stress Test" - the new mortgage qualifying rule
Last night I heard on the news that a new mortgage rule called stress test is coming in effect in two weeks. Starting Oct 17, 2016 all insured mortgage borrowers will have to qualify for maximum loan based on Bank of Canadas Benchmark Qualifying Rate instead of the real interest rate the lender is providing for the same term and conditions.
Well, this rule is not really new and has been used for high-ratio, variable rate and short term mortgages since April 2010. In other words even in the past when you apply for mortgage purchasing a home with Loan To Value LTV 80% (down payment 20%), or apply for variable rate mortgage in order to use the advantage of lower interest rates (like the lowest Ive gotten from a lender 1.95% variable rate for 5 years term), or for conventional mortgage for shorter than 5 years term, the banks were qualifying you using the Benchmark rate, which presently is 4.64%.
So, in my opinion, the new rule is adding a little difference to the whole picture. In addition to its current application this rule will be used for all new insured mortgages. However the conventional mortgages (LTV=80%) usually are not insured, or to be precise do not often require mortgage insurance. So, the conventional uninsured mortgages wont be affected. The high-ratio mortgages must have insurance, but for them this stress test rule has been in effect since 2010 anyway.
Also, the example they gave on the news for a hypothetical buyer with $100,000 income and $40,000 cash for down payment that can qualify for maximum $665,435 with 2.17% rate and for $505,762 with the 4.64% benchmark rate is not really relevant as in both cases the mortgage loan would be a high-ratio loan (94% in the first case and 92.1% in the second) so the buyer supposed to be qualified using the benchmark rate in a first place.
If interested in more details you can check my Affordability Feature Sheet below showing the maximum mortgage loan and maximum purchase price someone can qualify for with the 4.64% Benchmark Rate. The calculations are done for a standard 25 years amortization period for individuals or families with gross income from $30,000 to $125,000 and different down payment options.
The above calculation is average and is not guaranteed to be precise for your case and therefore should not be relied on without exact verification.
Please contact me for more information or for mortgage loan affordability calculation specific for you.
Top five home renovations that increase property value
Looking to increase your homes property value? Here are five of the best renovations you can do to your home to increase property value. These five renovations can sometimes have a return on investment 5-6x what they cost.
Flooring is one of the most important aspects of your house. You will see an immediate rise in property valuation with the installation of hardwood floors. Existing hardwood floors that you can refinish are ideal as they are less costly to restore and in higher demand than new flooring materials. For the bathroom, tile will always be in demand and retain value exceptionally well.
Kitchens often look tired and dated, in large part due to old fixtures. Replacing or updating cabinet hardware, light fixtures, countertops and faucets will result in an immediate increase in your homes value. This small, but effective upgrade will also revitalize the entire home. Pot lights are in high demand in open concept style homes.
Thebathroomis the second most important room in the home in terms of valuation. If you can add a three-piece bathroom to a home with only one full bathroom, you will see a dramatic rise in the market value of your home. While you should never compromise bedroom space for a bathroom, try sneaking one in dead space in the home. Scott managed to fit in a 3-piece bathroom under a staircase the width of the room measured just 44 inches. As an added tip, use glass for the shower to make the bathroom feel more spacious.
Kitchens are the single most important room in the home relating to valuation. The kitchen can make a significant difference in the value of your home. As such, it is crucial that you invest in having a modern, fresh anddesirable kitchen. Modern cabinetry, under cabinet lighting and new appliances will all significantly increase the value of your home on the market. To save on cost without compromising construction and desirability, look at options like Ikea cabinets as opposed to custom cabinetry.
#1 An Income Suite
No surprise, but the single biggest way to increase the value of your home is to build an income suite within the property. Whether this is converting yourbasement into a rental, or another floor in the home, an income property will increase your homes worth. The main reason for this is that it covers a portion, or sometimes all of your mortgage payments, and results in your home being cash flow positive which creates real wealth that can supplement your income.