Concerns Over the New ‘Stress’ Rules

According to the leading experts in the mortgage industry, the proposed ‘Stress’ rules—that are meant to control the risk associated with mortgage loans in real estate today—are likely to make it impossible for some aspiring homeowners to get a mortgage loan.

Essentially, the new rules, which will take effect from January, 2018, were aimed at cooling down such real estate markets as Victoria, Vancouver and Toronto. As opposed to the previous years, when secured mortgage loan borrowers were not supposed to take a stress test before they are approved for a loan, all borrowers will have to take this test once the new rules are enforced, regardless of the much they are willing to place as down payment for their mortgage.

This announcement has caused some aspiring homeowners to make rush decisions and buy properties before the ‘stress’ regulations come to effect. With only a month to go before these rules are enforced, it is not wise to panic and make rush decisions, regarding buying a home. Instead, it is advisable to consult with a knowledgeable professional, such as a broker or a banker. This will make you understand what effect the rules may have on your financial standing and what you can do to avoid it. The skilled professional will help you make a sound decision, in this regard.

Why are they enforcing these rules? Basically, the stress test is a test that is carried on your finances to ascertain whether you are capable of repaying the mortgage advanced to you in the event that the interest rates increased in the future. So, how is the stress test expected to work?

An Example:

For a family to buy a home worth about $726,939 using a mortgage loan today, the family has to have an annual income of about $100,000, assuming that the down payment is 20 percent and that the loan is based on a five years at a fixed rate. Once the new rules come into effect, a family with an annual income of $100,000 will only be able to qualify for a $570,970 mortgage. As you can see, the buying power for such a family will be reduced by about $155, 000, which really is a significant amount.

From the above example, you can clearly see that these rules will have a significant affect on your buying power, if you are looking forward to buying a home after January, 1. However, different realtors across the country seem to have varying opinions on how this move will affect their clients. For instance, Craig Race, a Toronto resident, initially thought that he had enough time to finish building his new home. However, he now has less than a month to complete the building, if he is to do it before the new rules are enforced. If not so, Craig will have to think of alternative financing for his project because he is currently using conventional mortgage to finance the construction.

While realtors ore opposed on how the stress test will affect home buyers across the country, they all agree that the move will be a blow to most of the potential home buyers. For instance, Ron Neal, a realtor with Victoria Re/Max, thinks that this move will slow the currently ‘hot’ real estate market in Victoria. Another realtor, Tony Joe, noted that many homebuyers are rushing to get mortgages before the deadline. In addition to reduced buying power, the new rules will also prevent some people from buying property in certain markets.

According to Joe, the worse hit property buyers, once the rules come to effect, will be the ones that buy real estate property at the top of their level of affordability. Unfortunately, most of the buyers today like exploiting all their buying power when buying a new property. This being the case, many of the aspiring home buyers will be affected, in this regard.

Again, the ‘stress test’ is expected to ‘knock out’ some aspiring homebuyers. As a result, the buyers who will not meet the new rules and would like to secure a mortgage after January, 1, will have to place a considerably large down payment for their loans. Alternatively, such buyers could look for property in the comparatively inexpensive markets.

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