05 Jan Things you need to know about new mortgage rules
Crazy high prices are no longer the only concern for people considering entering the real estate market or trading up for a bigger or better place. As of January 1st, all borrowers are now required to pass a stress test before they are allowed to take out mortgages, regardless of how large their downpayment. In other words, if prospective buyers fail the test, they will not be able to buy a house.
So, what do you need to know? The first important thing is to understand what the stress test really is. Simply put, uninsured borrowers from federally regulated lenders must have their finances “stress tested” to ensure they would be able to pay off their mortgages if rates were higher than they are today. To do that, the lender must run a test assuming rates were two percentage points higher than they are right now, and see if borrowers would be able to pay off the loan.
Potential buyers will be tested against the greater of either the Bank of Canada’s five-year benchmark rate (now 4.99 per cent) or the rate offered by a lender plus another two per cent. Those who fail the test will need to look for something cheaper on the market.
The stress tests are based on the notion that interest rates are set to rise, and there’s ample evidence to suggest that’s likely to come true.
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