People looking to buy a new home, whether or not it is their first, have been struggling to cope with the mortgage stress test that was introduced by OSFI on January 1st 2018. This is in large part because the stress test measures your ability to deal with either the Bank of Canada’s five-year average posted rate, or 2% higher than the actual mortgage rate — whichever one is higher.
Thankfully the Bank has paused hiking rates like it was doing between 2017 and 2018, which means variable rates are an attractive option again. Fixed rates have been dropping recently due to the spring season. You’re likely to see some aggressive pricing from mortgage lenders in the next few months because they’re eager to win your business.
The stress test has been a hot topic for anyone in the housing market and it’s likely that we’re going to keep hearing about it for a while. Since last October we haven’t seen the Bank of Canada increase rates and speculation has it that this is partly because the stress test slowed down the housing market more than intended. In addition, we may see some changes depending on what comes out of this fall’s Federal election. Rumour has it that we may see a return of the 30 year amortization. The maximum amortization period in Canada is currently 25 years, but an additional 5 years would make it easier for buyers to qualify for a mortgage and would also allow buyers to qualify for a higher mortgage amount.
How to beat the stress test
If you haven’t been able to pass the stress test on your own, you’re not alone. About 10% of buyers who could qualify for a mortgage before the stress test no longer qualify. In fact, many existing home owners can’t even qualify for a lateral move into a new home and are having to downsize. Here are some tricks to help you get the qualification you’re looking for.
Buy with a partner
Applying for a mortgage with two incomes instead of just one is bound to help your chances of success. Depending on your joint finances (income, debt, assets, and credit score) your buying power could double! If you have a romantic partner it is probably a given that you’ll make the application together. But if you don’t (or if that person’s financial profile doesn’t help you) you can also consider buying the property with a friend or family member. Whether it is an old college buddy, a sibling or some other relative, just be sure it’s someone you trust. You’ll both be equally responsible for making sure the mortgage gets paid on time every time. And keep in mind that you’ll have to have a plan in case one of you decides they want to sell.
Find a co-signer
If buying with a partner isn’t an option you could also try to find someone to co-sign with you on the mortgage. Doing this increases your ability to qualify for the mortgage you’re looking for. Whether your cosigner is a parent or somebody else you know, keep in mind that if you fail to make your payments they’ll be the one on the hook.
Lower your budget
If you’re having trouble getting approved for a house, consider buying a townhouse or a condo instead. If it’s important to you to own a home right away and you can live with a smaller place, this option increases your chances of mortgage approval. Doing this enables you to start building equity right away while you improve your finances. Once you can afford to buy a bigger place you’ll have some equity to help you with the down payment.
In today’s housing market there are a multitude of solutions for people looking to buy. If one of these options works for you give us a call today to get started. If they don’t work for you give us a call anyway and we’ll see what we can do to help get you into the home you want!