Canada’s top bank regulator has raised the mortgage pressure test level to 5.25 percentage points, or two percentage points, above the market rate, whichever is higher.
This is an increase from 4.79 percent, which is the current average entry rate of Canada’s largest lenders.
Thursday’s change from the Office of the Supervisor of Financial Institutions (OSFI) will require borrowers to prove that they can repay their funds at a higher financial rate, even if they are willing to lend. This will make it harder to qualify for a home loan, shrink the pool of eligible borrowers and ultimately reduce some upward pressure on home prices in the country.
OSFI said the new rules would take effect from June 1.
Also known as a “stress test” The rules went into effect in early 2018 And the overheated property had a cooling effect on what was on the market – after they were announced in late 2017, There was a stir at the last minute purchase By trying to get people inside before they are locked out to buy.
As soon as they were in early 2018, the hysteria died down.
The rules, officially known as the P-20 guidelines, have various aspects that basically boil down to one policy: if they are home buyers, their finances will be tested to see if they can repay the mortgage. They will rise much higher than they were at the time of signing the mortgage.
The checklist was set to be high: two percentage points above the mortgage rate at which they were issued, or whatever the fixed five-year average fixed rate at Canada’s largest banks.
In practice, that five-year average rate was asked to meet uninsured borrowers because market rates are much lower than two percentage points below the reserve period of the stress test.
Look at the numbers
Currently, The The five-year largest bank mortgage rate is 4.79 percent, But it is not difficult to find a debt of more than two per cent, half of that rate by shopping.
Looking at the numbers, it shows how easy it is to get over your head.
At two percent, a 25-year mortgage costs $ 300,000 and $ 1,270 a month. If the rates rise to 4.79 per cent, the rates already charged by the major bank increase by almost $ 500 a month to $ 1,709.
This is an increase of almost 35 percent over the borrower’s monthly budget.
At 5.25 percent, the new stress test rate will increase the monthly fee to $ 1,788 a month.
If the numbers show that the borrower’s finances cannot withstand a significant rate increase, the borrower fails the stress test and the lender is not allowed to lend to them.
Changed the COVID-19 program
Prior to COVID-19 the bank regulator was looking to set a different kind of definition for stress testing, but the epidemic abandoned those plans.
In addition to the high rate, the OSFI “plans to review the eligibility rate adjustment at least once a year to ensure it is environmentally sound.”
Activity of OSFI The average price of a Canadian home rose 25 percent Until the end of February.
It calls on policymakers to step back to ensure that borrowers do not get over their head.