The Mortgage Stress Test was introduced by the Office of the Superintendent of Financial Institutions in May 2022 in an attempt to cool off the red-hot pandemic housing market.
Now, anyone applying for a new mortgage or homeowner line of credit, or even renewing an existing mortgage, needs to qualify for inflated interest rates before they are approved for the loan.
Paul Van Grootheest, Broker with Century 21 Excalibur Realty Inc. Brokerage in Fergus, weighs in on the implications of the Mortgage Stress Test and offers tips for local buyers to navigate these new requirements.
What exactly is the “Mortgage Stress Test”?
“Interest rates have risen so much that buyers now have to qualify for an exorbitant interest rate,” explains Van Grootheest.
“When a buyer applies for financing to buy a house, the bank will determine the rate they can afford. But now, the interest rate they can afford has to be two percent higher than what they’re actually paying on their mortgage. So, the current rate is 6.34 percent but (buyers) need to qualify for 8.34 percent. That can be very difficult to do.”
Securing a co-signer is one way to help meet the requirements. Another option is to go beyond the bank or credit union and explore various lenders. “If someone goes to a ‘B” lender, there is more flexibility but you’re looking at a higher interest rate to begin with,” says Paul.
The Stress Test, which was implemented to temper an out-of-control market, is now putting a damper on the dreams of potential buyers.
“The Stress Test was originally introduced in 2017 to hold the market down because interest rates were so cheap. They knew those low rates wouldn’t last forever and if someone was maxing themselves out at two percent, they wouldn’t be able to qualify when it was time to renew at four or five percent. But, now that we’re at six percent, that stress test is really putting on the pressure, especially for first-time buyers. First, they were held out of the market because it was so hot. Now things have leveled off and homes are becoming more affordable, and they’re held out because of the interest rates. And that’s not fair.”
How can Century 21 Excalibur Realty Inc. can help relieve some of that buyer stress?
Eric & Paul Van Grootheest are passionate about real estate in Fergus and County Wellington. They have long standing reputations for honesty & integrity in the local community, and have used these qualities as the foundation of their business.
They understand the market and can help potential buyers navigate the processes. “We help walk people through and connect them with mortgage brokers to find better-qualifying rates,” says Paul, who encourages potential buyers to make an appointment to discuss their options, explore the homes for sale in the Fergus and Elora area, and take advantage of the active season coming up.
“The market is leveling out, and it’s our opinion that the Bank of Canada will not be making any more moves with interest.”
First-time buyers take note; more properties will be coming available in the next few weeks. “We’re definitely ramping up for the spring, and quite a few at starter rates,” Paul says. “If you are in the market, there are great options coming available.”
To learn more about the Mortgage Stress Test and discover homes for sale in Fergus, contact Paul Van Grootheest, Broker or Eric Van Grootheest, Broker of Record with Century 21 Excalibur Realty Inc. Brokerage at 519-787-1780