No matter how high the down payment is, all the mortgage applicants will have to pass a stress test beginning January 1 – said the office of the Superintendent of the Financial Institutions (OFSI) and as confirmed on October 17. This stress test was introduced last fall for all the applicants of insured mortgages especially for those with less than 20% down. This has now been extended to al l the mortgage applicants which also includes uninsured borrowers. This group comprises of a larger segment of the mortgage market. According to this stress test, the applicant’s income should qualify for the mortgage repayments at the Bank of Canada’s five year post rate – higher than the discounted rate they would pay in reality. This is to create a buffer against future rate and rises and any financial difficulties.
As per the financial experts, this move is said to reduce the Canadians’ home purchasing power by around 20% because higher interest rate will definitely reduce the maximum mortgage that buyers will be able to borrow.
Mortgage professionals have also widely criticized the new policy. They say that it makes it harder for buyers to enter an already challenging real estate market. There is however a lot of differences in opinion when t comes to reasons behind the new policy. Some of the noted mortgage experts express their opinion on the policy.
Michael Llyod, thinks that that fed’s true aim is to lower the high housing prices in Vancouver and Toronto. This is mainly because they don’t have any room to raise rates. The only other option is to make it tougher for people qualify for the mortgages.
Dustan Woodhouse, a mortgage broker and coach however disagrees with this assessment. When asked whether cooling hot housing markets was one of OFSI’s goals, he expressed completely different opinions. He does not seem to think that the premise for this policy is to make it tougher for the buyers to purchase. They are not worried about the consumer or the condo prices in Vancouver. The focus is on the banking system. Finding the cause for concern in those numbers, but they feel these are worth taking to preserve the stability of the banking system.
Woodhouse also said that this stress test will mean a reduction in the amount of mortgage money available to a buyer of about 20%. So, if you are looking at 500$ K homes, now you will be looking at $400000. That’s a very significant drop.
Overall, it is speculated that the new rules may do more harm than good and are unnecessary for the Canadian banking system.
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