April 14th, 2021 | Mortgage
WTF – New Minimum Qualifying Rate for Uninsured Mortgages in Ontario
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The other day, our trusted mortgage broker Jake shared with us his thoughts on the new minimum qualifying rate for uninsured mortgages. And of course we couldn’t keep it to ourselves – so if you’re a Buyer, then you should be curious and informed. Check out the post below to see what Jake has to say. 🙂
If there was ever a time for me to whip out an acronym that we all know what it stands for, today is the day.
WTF
The STRESS-TEST measure which was introduced in 2016 was designed as a buffer to offset against rising interest rates (LOL). The opposite happened with the pandemic (yay?). It has caused house prices to go bananas (good? bad?). The stress test was never really in sync with reality.
Today, it’s not even on the same planet.
OSFI (the powers that decide how banks run their business on the lending side) just INCREASED the stress-test rate to 5.25% and also increased my already high blood pressure.
Let’s look at an example of how this affects a typical borrower. Let’s call our borrower Judy.
- Judy makes $100,000 a year at her consulting job.
- Judy has a 10% down payment so needs a CMHC-insured mortgage.
- Judy wants a condo with $2000/year taxes and $400/m condo fees.
- Today, Judy can qualify for a mortgage of $484,000 plus her down payment.
As of June 1st, when this stupid stress test comes out, $465,000 is her max borrowing power.
It’ll affect Judy by about 4% LESS in a market that is NOT seemingly going down.
- If Judy has 20% down, she still has to qualify with the stress test.
- Today she can qualify for $552,000.
- As of June 1st: $525,000.
This is just a proposal. However, it’s kind of like when your parents proposed to you that you’re not going to that party on the weekend. It’s a “proposal” that is really a command.
This is the culmination of too much pressure on the Government from the banks – one of which stupidly said “break the psychology of buyers to cool housing” (BMO). What I find strange is – the banks are more than happy to dish out loans left, right and centre, but then want to crush the housing market which is responsible for 25% of our GDP. Hypocrisy!
If I’m to read between the lines, the stress-test change tells me one thing. The banks are super nervous about rising interest rates upon renewal. They must be making sure that people will be able to afford rates in the mid 3% range in order to qualify for a mortgage today (which they are locking in at mid 1% range).
It’s REALLY BAD optics though. Especially for first-time buyers.
June 1st.
Mark your calendars.
Things are getting fun.
So, what do you think about it? Share your thoughts in our comment section below and if you have any questions for Jake you can reach out to him >HERE<
