People have been listening to new jargon like “stress test” regarding mortgages. The government is using new words, which, in my opinion carry very negative connotations.
Stress Testing is a practice as old as the woods in lending. It is called “qualifying for your mortgage”. OFSI is now upping the game for the “conventional” borrowers (20% + in equity). Last year they made the same change for the high ratio insured borrowers (less than 20% down payment).
So what does the stress test means to most of our clients? Nothing, as 95% of our clients are on the variable interest rate mortgages which have had to qualify at the “stress test” rates forever. This means you qualify for a mortgage payment almost double than you what you have. Lucky you that you are part of The Personal Mortgage Group. We keep you safe in the End of Stress Zone.
To qualify for a mortgage you need to prove the family income is sufficient enough to pay for the mortgage you are applying for at the Mortgage Qualifying Rate (MQR) or 2% more than the rate being offered.
So the only people being heavily affected by this year’s change are those with a lower family income and those mortgaging over $1,000,000.
For example: A couple with a combined income of $80,000 with zero outside debt would qualify for $65,000 less mortgage on a high ratio purchase. On conventional financing, the drop is $80,000.00. This will put our lower or starting income earners out of the house buying market. Some unfortunately will never be able to climb the ladder to home ownership, making them perpetual renters.
Right now we have extremely low vacancy rates. Renting is becoming more difficult with the rise of short term rentals and close to zero landlord rights. This will make it even harder on those knocked out of the market by OFSI rules as in most cases they will be paying someone else’s mortgage at much higher pricing than if they were allowed to own their own home.
There is a bright side to this, especially for Mortgage Brokers who can deal with all lenders. OFSI only governs chartered banks and there are many other lenders who do not have to follow.
If you are at all concerned or are in the middle of renovating or are carrying a bunch of debt outside your mortgage call us just so you are not stressed!