Stressed out about the new Mortgage Stress Test? Confused about what EXACTLY you must do to qualify? For those unable (or unwilling) to read official policy documents, I’ve compiled what you NEED to know to survive January 2018.
The Mortgage Qualifying Rate (MQR):
What exactly is the Mortgage Qualifying Rate?
Simply, it’s a rate that was decidedly the rate set by regulators to ensure that mortgage borrowers will be able to qualify for higher future rates.
This applies to those taking out NEW mortgages from either the National Bank of Canada, Royal Bank, The Bank of Montreal, Canadian Imperial Bank of Commerce, The Bank of Nova Scotia and TD Canada Trust.
That means, if you are renewing your mortgage, you are likely safe. The ability to take on a 4.99% interest rate. That means, that even if you have secured a substantially lower rate common today: you will be able to handle an impending higher rate in the future.
What does that mean for you?
If you are currently in the process of mortgage payments and are thinking about renewing, chances are, you will be assessed at the standards of your original agreement.
That said, if you plan on borrowing, even given a typical fixed rate of 1-2% lower than 4.99% you will be held up against the Mortgage Stress Test.
Despite this potential hike in mortgage rates, the fact is: many people borrowing at 3% today will have paid off a decent chunk of their mortgage by the time 4.99% is common. This equation does not factor that in.
That said, you still have options. If you somehow need financing and are unable to meet the new requirements, there are NUMEROUS lenders that are not the Big Six Banks of Canada. This might be a worthwhile option to explore.
Why 4.99% for the MQR?
It’s unclear as to why the government and the banks have agreed on this for a 5-year projection on rate increases. The fact is, this is an extremely unlikely scenario for many mortgage holders. Even those who are going to borrow into 2018.
It seems more wise for the government to allow the MQR at a more conservative estimate of the rate and create a mandatory reassessment down the road as rates increase. In that case, many people will have the chance to get their financing today and not have to worry in 5 years.
If you are interested or have any specific questions, feel free to give me a call to discuss the contents of this article. I’m happy to help you find options that work for you, whether that means opting for a pre-construction property or otherwise!