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Exciting changes to the "Stress Test"

2/18/2020

The Government of Canada has announced that the on April 6, 2020 the Stress Test will be revised to make qualifying for a mortgage a reality for more Canadians. To qualify for a mortgage loan in Canada, homebuyers need to pass a “stress test” to prove they can afford payments at a qualifying interest rate which is typically higher than the actual rate in their mortgage contract. The government implemented this measure to ensure that Canadians can afford their mortgage payments if interest rates were to rise in the future. Today we have to qualify clients at the benchmark rate of 5.19%, regardless of their contract rate.

The changes will mean that instead of using 5.19% to qualify clients, I will be able to use a weekly median rate plus 2.00%. So let’s say the weekly median rate was set at 2.85% today, we would use 4.85% as the qualifying rate which is 34 basis points less than the old qualifying rate (5.19%). 34 basis points is a massive difference that will make the debt servicing ratios much more reasonable. Every other week I see situations where clients can debt service the real contract rate on a mortgage amount, but don’t pass the stress test at that same mortgage amount. In these scenarios we reduce the purchase price they would be approved for.

Please reach out if you want me to walk you through the process, let's get you into a house!

Government of Canada Announcement
https://www.canada.ca/en/department-finance/news/2020/02/minister-morneau-announces-new-benchmark-rate-for-qualifying-insured-mortgages.html

OSFI Announcement
https://www.osfi-bsif.gc.ca/Eng/fi-if/in-ai/Pages/bnchrt-let.aspx

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Everything you need to know about bridge loans

2/13/2020

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New clients often call me and tell me that they want to buy a house but won't have the down payment resources until they sell their current home. What clients want is a bridge loan, and there are many misconceptions of what a bridge loan is, and how you can get one. To help reduce the stress of buying and selling, I've put together a brief run-down on what a bridge loan is, and how you get one.

Bridge Loan Information

You can only get a bridge loan if you have an accepted offer on your sale, and the buyers have removed ALL conditions. So you need to factor in time for the buyers to get their financing in order, inspection, etc.
A lender will ask for the accepted offer on your sale (with all conditions removed) and a recent mortgage statement.. This will give the lender an idea of how much money you will be receiving from your sale, and they will float the down payment until you receive the proceeds of your sale.
There must be enough equity coming from the sale to cover the down payment and closing costs of the purchase, and any potential debt payouts that were necessary to make the debt service ratios work (e.g., student loans, car loans, credit card debt, etc.).
If you don’t have an accepted offer on your sale property and you still want to buy you will have to:
1. Be able to debt service holding both mortgages/property tax bills at the same time (i.e., the existing home and the purchase). This is the ratio of the monthly debts compared to monthly income.
2. You must have a minimum of 5% down (if you are moving in) and a minimum of 1.5% for closing costs from your own resources. You can’t use the equity in their existing home until there is an accepted offer with all conditions satisfied (meaning the people buying your home must have their financing complete and have removed the inspection condition for example).
3. Hope that you sell your house in time in order to afford both homes on paper. if not, you may not qualify to move into the new home and you could lose your deposit and be sued by the sellers. Also, if you need the down payment funds you need to have time to set up bridge financing, meaning that the buyers needs to remove their conditions leaving you enough time to set up the bridge. You don't want to be relying on this option.
Most lenders won’t bridge the funds for longer than 90 days.
Lenders charge between $200-$500 to set up a bridge loan
Interest charged on the bridged funds are approximately Prime + 1.5%
Lawyers charge between $100-$400 for the extra work

Not all lenders offer bridge loans, so it is ideal that we select a lender with the best terms before you put in an offer. Also note that setting up a bridge loan is a very different process at each lender, so let me expedite all of it for you by educating you on the best lenders for your situation. I will set up the bridge loan and all of the financing for you. Happy house hunting!

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The Mortgage Minute

Exciting changes to the "Stress Test"

Everything you need to know about bridge loans

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