Now that Canada’s new mortgage stress test rules have been in place since January 1, arming home buyers with a best practices tool kit is in order.
Introduced by the Office of the Superintendent of Financial Institutions (OFSI), the new stress test requires the qualifying rate for an uninsured mortgage to be the greater of the Bank of Canada’s benchmark rate or the rate homebuyers negotiate with their financial institution plus two percentage points.
Financial experts across the country are making recommendations that start with ensuring your timing is right for the mortgage plans you have in mind. For example, some contracts that may have been signed prior to January 1 of this year may still fall under the old rules. This would include purchases made prior to January 1 even if the closing date falls after January 1, however the purchase offer in these instances must be considered firm.
Canada’s financial advisors are also recommending potential home buyers look to clear their debts before they start shopping for a mortgage. This would be one definitive way to ensure the new stress test rules don’t disrupt home-buying plans.
Those who took advice to lock down a mortgage pre-approval prior to the start of 2018 and received an exemption to the rules with the idea they would buy a home within 120 days of being pre-approved now need to contact their mortgage broker. Analysts are recommending this group work with a broker and pay close attention to the fine print, so they have a clear understanding of the 120-day deadline and what all will be required to meet it.
Finally, analysts also caution owners who already have a mortgage. If you want to switch lenders at renewal, you will have to requalify under the new stress test. This is also a perfect time to review your financial and mortgage plans.
Contact me if you are unsure how the new stress test will impact your long term home financing plans.
2018 CMHC Prospective Home Buyers Survey
In October 2017, CMHC surveyed 2,507 prospective home buyers on-line. Respondents were all prime household decision-makers who intend to purchase a new home within the next two years, including approximately 1,500 First-Time Buyers, 500 current owners, and 500 previous owners.
The survey results highlight that:
- First-Time Buyers and Previous Owners share the same top motivator to purchase a home: they want to stop renting. Improved accessibility (physical obstacles and barriers) and investment opportunity were also noted as top motivators across all groups. Changes to mortgage regulations and concerns about possible future interest rate increases were not among the top motivators.
- Over four-in-ten First-Time Buyers and Previous Owners say they would delay their home purchase if they were not able to find their ideal home, with a fairly similar proportion saying they would be willing to compromise on the size of the home and location.
- The majority of future home buyers intend to obtain a mortgage to finance their home purchase, with First-Time Buyers showing higher incidence compared to Previous Owners and Current Owners.
- Across all future home buyers groups, more than six-in-ten say they are likely to have a financial buffer in case their expenses change in the future. Furthermore, the majority of future home buyers, especially Current Owners, agree that they feel confident they have the necessary tools and information to manage their mortgage and debt load.
- Among all groups, the two most common actions completed one to two years prior to the purchase of a home were saving for a down payment and determining what type of home to buy. On the other hand, in the last three months before purchasing, about two-in ten of prospective buyers pre-qualify for a mortgage.
- About one-in-four prospective home buyers stated that they would be very likely to consider delaying their purchase in the event of an increase in interest rates.
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