On Monday, stricter new federal rules about who can qualify for an insured mortgage took effect across the country. Now, all new mortgage applicants have to pass a ‘stress test,’ which tries to predict whether they can keep up with mortgage payments, at their current salary levels, if interest rates were to rise.
Low interest rates have fuelled red-hot real estate markets in south-central Ontario and, especially, Vancouver. As real estate values have skyrocketed in both places, uneasiness has grown about affordability and whether real estate has become a bubble economy.
Because of mortgage insurance guarantees, Ottawa has a stake in homebuyers not buying more than they can afford (leaving aside risks to the wider economy).
“I want to make sure we are proactive in assessing and addressing the factors that could lead to excess risk,” federal finance minister Bill Morneau said of the changes.
Under the new rules, borrowers will be tested on their ability to pay their mortgage if rates were as high as the five-year posted mortgage rates among Canada’s largest banks, which currently average 4.64 per cent, according to the Bank of Canada.
So if the stress test limits won’t let you buy the house you have in mind (or any house at all), is that the end of the story?
Not necessarily, but the answer really depends on your attitude to risk, and debt.
First-time home buyers will likely be looking at cheaper homes now that the Trudeau government’s new mortgage rules have taken effect. The new rules mean potential buyers will need to go through a stress test for insured mortgages. Quinn Ohler has more on what it means for Edmonton.