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Mortgage Stress Test Changes Coming April 06-2020

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Starting in April, the government will change the rules that cover mortgage lending in a way that should, in the short term at least, make it easier to qualify for a loan to buy a home.

The Department of Finance says that as of April 6, the so-called “stress test” for mortgages will be calculated in a new way.

The stress test was implemented in January 2018 as a way to let some of the speculation out of the housing market at the time. It does so by making sure borrowers will be able to pay down their debts even if rates move higher. A would-be borrower is tested against his or her ability to pay down the loan at a higher interest rate, and if the borrower fails the test, a lender isn’t allowed to loan them money.

The rules had the effect of cooling the market, especially for first time buyers, which brought down prices in many markets because it shrank the pool of buyers.

ANALYSISAssessing whether 2020 will bring a Canadian property tumble: Don Pittis

At the time it was brought in, the benchmark was set at whatever the five-year posted rate at Canada’s big banks is, which is currently at 5.19 per cent. But under new rules announced on Tuesday and set to be implemented in April, the new bar will be “the weekly median five-year fixed insured mortgage rate from mortgage insurance applications, plus two per cent.”

“This will ensure that people only take on mortgages that are appropriate for the situation, but it does mean the changes in the stress test will be there if the average … rates provided by the banks actually goes down or up,” Finance Minister Bill Morneau said of the changes. “It will actually adjust appropriately to dynamic market conditions.”

The change tinkers with one of the major criticisms of the stress test in the first place, which was that the bar was set arbitrarily high. And non-bank lenders don’t like that the stress test rules give the big banks even more control over the market than they already had. Sherry Cooper, chief economist at Dominion Lending Centres, says the banks would always drag their feet in changing their posted rates, no matter what was happening in the market, “because it’s the rate they use in calculating the penalty for breaking a mortgage,” she said in an interview Tuesday. “This takes the big banks out of it.”

Source: https://www.cbc.ca/news/business/mortgage-stress-test-1.5467330

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Mortgage Renewal: The Process

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Mortgage Renewal

The process of Mortgage renewal

Mortgage renewal is a very simple process when compared to other types of mortgages and their terms and conditions. But this does not, in any way, mean that we shouldn’t put as much effort as we did while acquiring the mortgage in the first place. The mortgage renewal process starts once your term has ended. But, mortgage experts say that the process for mortgage renewal actually starts at least four months in advance.

 

Mortgage renewal process

 

These are the Four steps involved in the Mortgage Renewal process:

Step 1: Understand your needs:

At that particular point in time, what are you looking to get out of your life in the next five years? This is a very important question as it can help you determine what kind of rates and schemes you are looking for. If you are planning to go for a big investment in the future such as your child’s education, then you need to go for lower rates. But if you have gotten a raise, you can opt for higher rates in your mortgage renewal contract.

Step 2: It’s time to shop!

Most of us would have our date of maturity for the mortgage marked on our calendar. We just need to start shopping for rates four months in advance of this date. The shopping process begins with you contacting a mortgage broker. You can consult with them and decide what rates would be the best for you and from whom you can get them. The broker will work to get you a good deal for your mortgage renewal.

Step 3: Compare and decide:

After you have shopped around and have gained enough knowledge, you need to compare all the rates you have seen and decide on the mortgage renewal plan. The lowest rates are sometimes not the best. Consider all the factors of cost and time. The penalties and other terms also need to be understood. Take your time to decide. If you start shopping early, you can make a well-informed decision in the last 30 days before maturity.

Step 4: Sign on the dotted line:

After you have decided on the mortgage renewal plan, all you have to do is a sign. Take the contract from your lender and sit with a mortgage broker to understand if it has been done according to your plan. Consulting a lawyer isn’t a bad idea either. If everything seems fine, go ahead and sign.

for more details visit: https://finser.ca/mortgage-renewal/

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