Mortgage Stress Test Rates Drop for The First Time Since 2016

While the Bank of Canada’s mortgage rates in the OSFI Stress Test has proved to live up to its name since implemented back in January 2018. Last Friday, however, the banks finally decided to lower their mortgage rates for the first time in almost 3 years.

The central bank’s five-year benchmark qualifying rate has dropped 15 basis points, from 5.34 per cent to 5.19 per cent. For those with uninsured mortgages, the bank’s new rate has had a soothing effect on the mortgage rates and OSFI stress test. The OSFI’s Residential Mortgage guidelines indicate that the qualifying rate for all uninsured mortgages should be greater of the predetermined mortgage rate plus two per cent or the published Bank of Canada five-year benchmark rate, at a minimum. Any buyers looking to qualify for a mortgage are tested on whichever rate is higher. Subsequently, for the time being, it will offer those with uninsured mortgages an easier chance of qualifying.

In addition, if we compare the market statistics seen in 2016 and 2017, we have undoubtedly noticed the heightened mortgage rates in OSFI Stress Test soften the real estate market since being executed. Real Estate transactions slowed considerably in 2018 as a result. Data proves a surprising 19 percent decrease in home buyer’s new mortgages in 2018.

Furthermore, with the stricter lending rules in place, Canadian’s have been seeking uninsured mortgages from alternative lenders. According to CMHC reports, Canada had between 200 and 300 alternative lenders, who normally offer terms between six and twenty-four months. The gap between insured and uninsured mortgage has continued to increase due to fluctuating economic conditions, regulatory changes, and adjustments to portfolio insurance. Fewer than 1 in 3 new mortgage loans came from insured mortgage organizations.

Surprisingly, Canadians can now get a lower interest rate on a new mortgage by locking into a fixed-rate, rather than opting for a variable rate. When it comes to financing well-qualified borrowers, it’s been decades since the five-year fixed rates have been this cheap compared to variable rates.

Conclusively, these changes will definitely offer Canadian home buyers a little bit of hope and some extra breathing room while navigating the real estate market. We encourage you to speak to your preferred Lender about what your best option is when qualifying for a new mortgage.

If you want to learn more about what these changes might mean for you and how you can take advantage of the real estate market and these new rates, contact us today! Let us help you make the move that is right for you!