June 1 – What You Need to Know

Starting June 1, 2021, the minimum qualifying rate used for both the insured and uninsured mortgage stress tests will be increasing.

Purchase a Home?

Whether you’re making a down payment of less than 20% or more than 20%, you will now have to prove you can afford payments based on your contract rate plus 2%, or 5.25%, whichever is higher. Currently, the minimum qualifying rate is 4.79%.

The changes were announced by the Office of the Superintendent of Financial Institutions and the Department of Finance and will reduce the maximum mortgage you qualify for by between 4-5%. That means if your current maximum mortgage is $400,000, it will fall to $382,400 on June 1 if you’re applying with a federally regulated institution. 

The higher stress test will not apply to your purchase if it was made before June 1 (with a signed purchase to offer).

Refinancing Your Home?

If you currently own your home, with or without a mortgage already in place, the new stress test will affect you when it comes time to renew/refinance. 

When you renew or refinance, you are seeking to make a change(s) to your current mortgage. If you are renewing, you may be getting a lower interest rate but you ARE NOT seeking to take out any extra funds. Simply put, you are keeping the mortgage balance the same. If you are refinancing, you may be looking to lower your interest rate, but you MAY ALSO be looking to take out some of the equity that has grown in your home to pay for upcoming renovations, to reduce higher interest debt, or to invest. If you are looking to refinance, the new, higher stress test rate will reduce the amount of money you can pull out of your home by approximately 4-5%.

Consider the following scenario  

You have $180,000 remaining on your current mortgage and your current 5-year term is ending next month. The current market value of your home is approximately $500,000. You call your mortgage broker, Eric Sabatini, to discuss your current situation and to ask about taking out some equity in your home to pay for a basement renovation, credit card debt, and your daughter's university education. 

• Eric explains that BEFORE June 1st, 2021, you will qualify for a $350,000 mortgage. This means you can take out $170,000 on top of your current mortgage balance of $180,000 to pay for that basement renovation, credit card debt, and your daughter's university education. 
• Eric explains that AFTER June 1, 2021, you'll qualify for approximately $332,000. In this scenario, you will be able to take out $18,000 less equity to help pay for those renovations, high interest debt, and university education. 

No-Stress Mortgage?

Many clients are unaware that I have access to many local, AAA+ lenders that are provincially regulated. This means that these lenders do not have to follow the stress-test guidelines as outlined by the Federal Government in Canada. I work with several credit unions in Ontario that offer "no-stress mortgages." Depending on your situations, we can look at finding you a mortgage product with lower qualifying rates. This means that you do not have to prove that you can afford mortgage payments at 5.25%. Rather, if the provincially-regulated bank offers a rate of 2.59%, you need to prove that you can qualify using that contract rate of 2.59%. No-stress mortgage products have become increasingly popular, especially for individuals looking to qualify for a higher purchase price in this white-hot housing market. 

As always, please feel free to contact me if you have any question about these changes.

Eric Sabatini - Mortgage Broker in Niagara
(905) 401-2552

eric.sabatini@mortgagegroup.com

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