Stress Test Dominion Mortgages
As a response to concerns on expected increase in defaults due to rising house prices and a projected rise in mortgage rates, we now have more stringent mortgage qualification rules that were implemented in October of 2016. Many current and prospective homeowners do not know what to make of the stress test that was the highlight of the flurry of changes. Not to worry though, Dominion Mortgages is here to provide a breakdown of the stress test and its impact on government-backed insured mortgages.
What Is the Mortgage Rate Stress Test? Dominion Mortgages Expands
Under the new insured mortgage eligibility rules, all Default Insured homebuyers are required to qualify their mortgage payment at a greater interest rate than their contract mortgage rate. The implication is that, regardless of the amount you have put down as down payment, if you are seeking an insured mortgage, you must first successfully qualify using the mortgage stress test rate, which is the Bank Of Canada’s posted 5-year rate. Even though the rate you get and the rate your payments are based on is lower, you need to qualify for the posted rate. This is in contrast with the earlier situation where you could qualify for a mortgage on your contract rate (the rate you actually get) as long as the term was 5 years or longer. Mortgage Default Insurance is insurance for the bank in case of default that is backed by the federal government in collaboration with the Canada Mortgage and Housing Corporation (CMHC).
What Is the Essence of The Mortgage Qualification Stress Test?
The stress test implemented seeks to measure whether buyers can still afford to fulfill mortgage payments if their interest rate were to increase up to the Bank of Canada’s posted five-year fixed mortgage rate. This rate is 4.64 percent as of May 2017, and this is significantly higher (approximately 2%) than the contract rates currently offered by banks and other lenders.
Does This Mean You Cannot Access a Mortgage?
Absolutely Not! With the professional help of Dominion Mortgages, we can help you navigate through these rules to get you pre-approved for a great mortgage. We can tell you how much you qualify for, what your payments will actually be, and all the other terms that are important, such as mortgage portability, future refinancing options, and payout penalty calculations if you were to pay it off early.
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