Recently the government, through the body that regulates federally charted lenders, OSFI, announced that it was ‘considering’ changing increasing the stress test for uninsured mortgages to 5.25%. Consideration will no doubt turn into action, likely by June 1.
What this means is that, if you are purchasing with 20% down and purchasing after that date, your maximum borrowing power will be reduced by as much as 5% and where you previously qualified for $500,000, you will now qualify for $480,000 in borrowing.
The government says that this is an effort to cool the very hot housing market however, in an election year, it is likely to just be an attempt to show the government is “ doing something” about the problem.
Let’s look at a real world example to illustrate the changes proposed:
John and Mary have a pre-approval in place, which expires July 31, 2021:
It states that they are pre-qualified:
Maximum Purchase: $900,000
Down Payment: $200,000
Maximum Mortgage: $700,000 ( 30 years,with a variable rate of 1.50% ).
On June 2:
Maximum Purchase: $900,000
Down Payment: $225,000
Maximum Mortgage: $675,000
As I suggested, I suspect that this is being done largely for appearances sake. Consider that over the last year, although prices have climbed steeply and demand far outstripped supply, the amount of money you qualify to borrow has not changed, because of the stress test that is already in place.
The extra funds required are already coming from increased down payments…
If you have any questions or need help, just give me a call.
JB
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