Back in October last year, the federal government announced a significant change concerning guidelines for borrowers of high-ratio mortgages (affecting those with a deposit of less than 20% of the purchase price of a home).
What is the stress test?
Borrowers requiring mortgage default insurance must meet a mortgage “stress test.” Essentially, a borrower must be able to carry a mortgage based on the then-current Bank of Canada rate for a five-year term, rather than be able to carry a mortgage at the financial institution’s advertised rate for a five-year mortgage.
Further, homeowners who have an existing high-ratio mortgage will have to meet the “stress test” guidelines at the time these mortgages are due for renewal; the exception is where the homeowner pays down the outstanding balance by an amount sufficient to bring the mortgage out of the “high-ratio” category.
Who is most affected? What will the effect be?
As these changes are affecting the ability of some first-time home buyers to qualify for a mortgage, they may also lead to a decrease in the number of first-time home buyers, fewer bidding wars in hot markets as well as changes in the move-up market.
These changes have impacted the rental market. Now bidding wars sometimes occur for rental properties.
The stress test has not really impacted investors as lender have for many years required 20% down.
