Is the new stress test regulation stressing you out?
How will it impact you? Learn about your options, how you can take control, and be prepared for your next mortgage renewal or refinance.
Ready or not ─ stress testing is here and it’s already sending shock waves through the province.
Without a doubt there is widespread concern about the mandatory stress test to be applied on all uninsured conventional mortgages issued by banks. Prior to this new rule, buyers with a downpayment of 20% or more qualified for conventional mortgages which did not require the purchase of mortgage default insurance ─ because these borrowers were considered less likely to default on their mortgage payments. In addition, the larger downpayments usually allowed these borrowers to secure better rates and extended amortization periods. That has all been stripped away.
These same borrowers must now qualify at 5.14% or 2% above their negotiated bank mortgage, whichever is higher. In other words, if your negotiated bank rate happens to be 3.5% interest, the additional 2% mandatory stress test means you will have to qualify at 5.5% interest. Your actual mortgage payment will still be calculated at 3.5% ─ however, you must be able to carry the payments at 5.5%. The Ontario mortgage industry regulator (FSCO) has implemented this rule to ensure that people will be able to continue paying their mortgages in the event that rates rise.
What should you do in response to the new Stress Test?
It’s important to take control ─ and know if you would qualify at the stress test rate today. Any changes you make to your mortgage will require mandatory stress testing ─ even if you simply want to add a line of credit. If you haven’t already done so, it’s the perfect time to schedule your annual financial check up. A mortgage advisor can assess your situation and run the numbers to see if you would qualify today. From this information we can advise you on a strategy to get you in good shape for your next mortgage renewal or refinance.
Contact us today to schedule your complimentary consultation.