After months of intimations that more mortgage rules are coming, the Federal government made it official last week. As of January 1, 2018 ALL MORTGAGES will be subject to a ‘Stress Test’. Regardless of the loan-to-value, high-ratio or conventional, insured or uninsured, Canadians will be forced to qualify at a rate that is 2% higher than the rate they will actually pay. This reduces borrowing power by 20% on average.

In October 2017, the Trudeau government swooped in with a new stress test for high-ratio mortgages (purchases with less than 20% down), in an effort to cool the housing markets in Toronto and Vancouver. Over the past year, the new rules did little to achieve that goal, but instead, have hurt average Canadians, especially single income earners. It is more difficult for first time buyers to get into home ownership and many people who have been saving up their 5% down payments have been forced to keep renting.

Dr. Sherry Cooper, Chief Economist for Dominion Lending Centres, refers to these acts by the Federal Government as “self-inflicted wounds”. The mortgage default rate in Canada is amongst the lowest in the world, at less than 1/3 of 1%. Why the focus on trying to fix something that ain’t broke? Why don’t they make banks give mandatory ‘stress tests’ to double-digit interest lines of credit, credit cards and vehicle loans? Mortgage debt is healthy debt as it’s secured by property, which over time appreciates and builds equity for homeowners.

If you are thinking of purchasing with 20%+ down, as of January 1^st, you will be made to endure the stress test. If you are thinking of refinancing to consolidate high-interest consumer debt, do some renovations or make some investments, you will also be stress tested as of January 1^st. We urge you to contact us ASAP so we can determine if you will be adversely affected.

Maureen received our eBlast about this topic last week and contacted us about refinancing to pay off some debt. A single mom of two, she is carrying about $15K in consumer debt and struggling to make the minimum monthly payments. Only 2 years into her mortgage, her property value is up and the penalty to break it early isn’t bad (of course we placed her in a good mortgage with good terms).

Monthly Savings: $1138!!!!!

Annual Savings: $13,656!!!!!

By placing Maureen into a new conventional mortgage (80% LTV), she no longer needs to pay the default insurance premium that high ratio mortgages have. Even though interest rates are a little higher than two years ago, we are able to get her more money and actually save her money. Think this is too good to be true? Contact us for more insight.

She is a prime target for the new January 1^st rules. If she had waited until next year, it would not be possible to refinance her and she would be stuck with $15K of high interest debt and struggle to make the minimum payments and be debt-ridden for the foreseeable future.

Contact us today and we will see whether or not you’ll be adversely affected after January 1^st. We’re here to help.