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26 Jul

New Stress Test, First Responder Program and Enhanced First Time Buyer Program

General

Posted by: Alisa Aragon-Lloyd

* New Stress test Rules

As expected, the Office of the Superintendent of Financial Institutions (OFSI) confirmed that it will move ahead with the proposed new stress test which was announced in April. This will affect any uninsured mortgages which would affect anyone buying a property with more than 20% down payment, or anyone refinancing their mortgage.

However, it was not expected that the Department of Finance is following OFSI’s lead and applying the new stress test to insured mortgages this now will affect anyone buying a property with less than 20% down payment and are required to have mortgage default insurance.

This means that when applying for a new mortgage or refinance your mortgage whether it is insured or uninsured, you will have to qualify with the new stress test. Borrowers will now have to qualify (show that they can afford the payments) based on the higher of the contract rate (the rate that you will be paying) plus 2% or a new floor rate of 5.25%, previously at 4.79%.

The government, who regulates mortgages are concerned with the hot housing market and this is one way to slow down the market. There are other ways that can slow down the market such as increase interest rates however that will have a negative impact on the overall economy.

What does this mean to you?

This means that the biggest impact to you, will be on the amount that you will be able to qualify for.

The increase of the new stress test will decrease the borrowing power by approximately 4% to 4.5%. For example: prior to the change, a borrower could qualify to purchase a home for $735,000 by putting 20% down payment. With the new stress test the borrower would now only qualify for a home of a purchase price of $700,000.

To put this in perspective, the B-20 stress test that was implemented in January 2019 which required borrowers to qualify at the higher of either the 5-year posted rate or the contract rate plus 2% their buying power was reduced by 22%.

* Enhanced First-time Home Buyer Incentive Program

On September 2nd, the Government of Canada introduced the First Time Home Buyer Incentive (FTHBI) to help qualified First Time Home Buyers purchase a home, making homeownership more affordable by reducing their monthly mortgage payment without increasing their down payment.

The First Time Home Buyer Incentive is considered a Shared Equity Mortgage (SEM) where the Government of Canada has a shared interest in the borrower’s property value. The government shares in both the upside or downside of the property value.

By using the incentive, the borrower may not have to save as much of a down payment for a smaller mortgage, and, ultimately, lower monthly costs.

The homebuyer will have to repay the incentive based on the property’s fair market value at the time of repayment. If a homebuyer received a 5% incentive, they would repay 5% of the home’s value at repayment. If a homebuyer received 10% incentive, they would repay 10% of the home’s value at repayment.

However, due to the higher property values this program was not beneficial in major metropolitan areas such as Vancouver, Victoria and Toronto.

The good news is the program has been enhanced where first time home buyers purchasing a home in these census metropolitan areas are now eligible for an increased qualifying annual income of $150,000 instead of $120,000, and an increased total borrowing amount of 4.5 times instead of 4.0 times their qualifying income. For borrowers purchasing outside these areas the original qualifying income remains the same.

To find out how this program affects you or someone you know buying or the first time, please contact me.

* Introducing First Responder Mortgage Program

I wanted to personally say “Thank you” to all our First Responders. They are an integral part of our communities and a way to show our gratitude, we are happy to introduce the Dominion Lending Centres First Responder Mortgage Program.

This program is backed by one of Canada’s largest banks and includes competitive rates and cash back incentives depending on your mortgage amount.

This program is eligible for the following individuals:

· Police officers

· Paramedics

· Firefighters (employed &volunteer)

· Correctional services

· Border services

· Search & rescue (employed & volunteer)

· Registered physicians

· Registered nurses

Please contact me today for more details!

* Looking at options or have questions?

Interest rates have gone up slightly, yet they are still close to their all time low!

If you think ahead for the coming year and if you wish to access any funds for any reason: investments, renovations, debt payout, etc. The savings on the low interest mortgage rate against high credit card fees is a huge savings on its own. If you have been considering it, now may be just the right time to do something like this and save for the next 5 years.

Also, if you are thinking of selling within the next 2 – 3 years, you can port (move) this mortgage over to your new property as well as increase or decrease according to what you need at that time.

As always, if you have any questions or need assistance, please give me a call at 778.893.0525 or send me an email alisa@financingpros.ca.

Thank you for your business and referrals, they are always much appreciated.

Wishing you a great day ahead and hope you stay healthy!

With gratitude,

Alisa