Mortgage Stress Test *** CHANGING APRIL 6, 2020 ***
The Mortgage Stress Test calculation — ensures potential home buyers would still be able to make their payments if the mortgage rate were to increase — is changing April 6, 2020 to use the average industry rate, instead of using a rate two per cent higher than the Bank of Canada’s average five-year-rate.
- The average industry rate, currently more than half a per cent lower than the bank rate, means that it will lower the threshold for individuals to be able to qualify.
- This may help first-time homebuyers afford their first home!
Here Is What You Need To Know:
A better name would be an “affordability” measure, not a “stress test”.
The main factors in determining how much of a mortgage payment
you can afford are:
- your income,
- the amount of your down payment; and
- how much debt you carry on other things, such as a car, student loans, credit cards, etc.
The Government of Canada has announced the First Time Home Buyer Incentive program. Check with your mortgage specialist to see if you qualify.
The amount of your own money that you put towards the purchase price of your home is considered your down payment. The more cash you have up front is an important factor in determining how much you can pay for a house and what type of mortgage you will qualify for.
In some cases, it is possible to borrow part of your down payment, but that debt will count against you when determining the amount of your mortgage. Some people are able to receive a gift from parents or grandparents towards their down payment. You may need a letter from the giver that the funds are not repayable.
You need to list all of your debt and the payments you make to reduce that debt. Don’t leave anything out! The student loan that’s almost paid off, the payment you are making towards your holiday trailer – anything that you make payments toward needs to be included.
AND ONCE YOU ARE PRE-APPROVED, DON’T BUY ANYTHING ELSE ON CREDIT, ESPECIALLY A HELICOPTER! A PRE-APPROVED AMOUNT CAN CHANGE IF YOU INCUR NEW DEBT BETWEEN THE TIME OF YOUR PRE-APPROVAL AND THE FINAL APPROVAL.
Other factors are also considered when applying for a mortgage. Your employment and credit histories are two of the important ones.