June 1, 2021: New Mortgage Stress Test

June 1, 2021 New Mortgage Stress Test

It came as a surprise yesterday to hear that the minimum qualifying rate for ALL (insured & uninsured) mortgages will increase on June 1st. The new qualifying rate will be the greater of the borrower’s mortgage contract rate plus 2 percent or 5.25 percent.

If you plan on buying a new home, it is important to know that the new mortgage rule will affect you.

This change will on average lower the borrower’s max qualifying amount by approximately 4 percent. For example, if your max pre-approval was $465,000, now it will be roughly $446,400, which is just under $19,000 less buying power.

If your max pre-approval is at $300,000 (at today’s qualifying rate of 4.79%) after June 1st, your new max pre-approval will be approximately $288,000 (with the new qualifying rate of 5.25%.) According to real estate agents, this is enough for some buyers to make offers on homes before the June 1st deadline (which is super tight.)

Most lenders are approaching the new “stress test” similar to how they dealt with the original “stress test” that came into force on January 1, 2018. Any purchase contracts received before June 1, 2021 will qualify at either the current Bank of Canada (BOC) rate or 2 percent above the contract rate.

The Office of the Superintendent of Financial Institutions (OSFI) superintendent Jeremy Rudin has said that the change was necessary to ready the market for the end of the pandemic.

“The main thing we have to be ready for is an increase in mortgage rates to the pre-pandemic range,” Rudin told reporters.

The Office of the Superintendent of Financial Institutions (OSFI) confirmed the changes in a release Thursday after it reviewed submissions on the plan that it first proposed in April.

“The rate in place as of June 1, 2021 will help support financial resilience should economic circumstances change, while our commitment to review the qualifying rate at least annually will contribute to continued confidence in the Canadian financial system,” Ben Gully, OSFI assistant superintendent of regulation, said in a release.

OSFI also said Thursday that it would review and communicate the qualifying rate at least once a year — every December — well ahead of the spring selling season.

Contact me to update your mortgage pre-approval if you plan on buying a home this summer. It is very important that you clearly understand how the new “mortgage stress test” will impact your buying power.

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