February 20, 2020 | purchase
Attention Toronto homebuyers! Just as the real estate market in Toronto started to gain momentum due to the lack of new offerings that led to serious competition for home buyers, the government had to make an important announcement that could heat things up a little more.
The federal government has announced the adjustment of the stress test for insured mortgages. This latest news is expected to take effect on April 6, 2020, and some experts believe that this should make it easier for some buyers to buy their first home. While this is exciting news, some experts fear that this could heat up the market a bit too much.
Treasury Secretary Bill Morneau announced the change on Tuesday, saying that the new stress test rules promise to respond better to changes in the median interest rate and continue to ensure that people only get affordable mortgages. Canadian household debt has increased dramatically, partly due to mortgages. The new stress test is designed to protect Canadians from defaults on mortgage payments should interest rates rise in the future.
The new stress test states that borrowers with insured loans must qualify 2 percent above the interest rate offered by their bank or 2 percent above a new 5-year weekly average mortgage rate based on mortgage insurance applications. The Bank of Canada’s 5-year mortgage reference rate is currently 5.19 percent, while the Royal Bank announces on its website a 3.09 percent fixed-rate 5-year mortgage rate.
The big picture
This new change to the stress test should ease the pressure on first-time buyers looking to enter the market or on owners refinancing their existing mortgages. The change will have no dramatic impact on the real estate market until, as expected, on April 6, 2020, the OSFI will adopt the new key interest rate for uninsured mortgages. This could require a hotter spring market than initially expected in 2020 and, due to the lack of new GTA offerings, could likely lead to an increase in property prices than we have already seen.
Would you like to know what these changes could mean for you? Contact us today and we can help you better understand your position in the current real estate market in Toronto.
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