WHAT IS B.C.'S MORTGAGE STRESS TEST, AND HOW DOES IT AFFECT ME?

It is important to know what you can safely afford when you are shopping for a house - what your limit is and how you can plan for the future. With interest rates increasing, you do not want to find yourself trapped in a mortgage you cannot afford. Mortgage stress tests are used to keep homeowners from over-extending their finances.

What is a mortgage stress test?

First of all, you might be wondering what, exactly, is a mortgage stress test. Whether you are a prospective homebuyer, or a current homeowner whose mortgage will soon be up for renewal, you should be aware of the effects the stress test can have on your ability to be approved for a mortgage. The purpose of the mortgage stress test is to assess whether you would still be able to make your monthly mortgage payments should interest rates increase in the years to come. As of January 2018, even those who put a 20% down payment towards a home will have to undergo a mortgage stress test.

How does it work?

If you have 20% to put down on a home, the mortgage stress test qualifying rate would be the rate offered by your lender plus 2% or the Bank of Canada's five-year benchmark rate,

whichever is higher.This percentage is used to determine whether or not you would be able to afford the new monthly mortgage payment if interest rates were to increase.

Now if you have less than 20% to put down, your rates from a lender are typically higher, so your mortgage stress test qualifying rate would be different. It would be calculated using either the Bank of Canada's five-year benchmark rate or simply your lenders' rate, without the 2% increase, to calculate the potential monthly payments. Again, the higher of the two is chosen. Because of these mortgage policy changes, the amount for which you can be approved for will be lower than it was previously. But, as more interest rate hikes are expected in the future, you will be safer in the long run, which is the goal.

Fixed or variable mortgages

People with fixed mortgages might feel quite safe, but the mortgage stress test can affect you as well. Those renewing their mortgages with the same lender will not need a new qualifying rate. If you decide to change lenders or to refinance then a mortgage stress test is required to determine a new rate. Anyone with a variable mortgage knows to watch interest rates and they will be affected immediately following an increased rate. Take the time to determine what you can safely afford and how you can set yourself up for success in the long term. While the stress test may reduce the amount of homes that you can afford, the mortgage stress test is designed to protect Canadians from over-extending their finances and falling into a trap down the road.

Derek Weatherhead

Contact Information

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2508601100

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About
Derek Weatherhead is a highly accomplished real estate professional with over a decade of experience in the stunning Okanagan Valley. As a Royal LePage Kelowna agent, Derek has successfully concluded transactions in all price ranges and property types, from small starter homes to luxurious lakefront estates. In fact, he's helped numerous clients achieve their real estate goals, from selling a stunning lakefront property in Kelowna, to helping a first-time buyers secure their dream home in Lake Country. Derek's primary goal is to provide his clients with a superlative real estate experience that incorporates guidance and education. He prioritizes regular communication with his clients to ensure that they are informed and empowered throughout the buying or selling process. As a skilled negotiator and problem-solver, Derek works tirelessly to ensure that his clients get the best possible outcome for their real estate transactions. Derek's success is built on a strong foundation of carpentry and construction experience. He started his career and love for real estate as a carpenter, working in his uncle's manufacturing shop, and progressed to finishing carpentry, framing and constructing home foundations in Sun Peaks, Calgary, and Vernon. Next, he followed through with completing his apprenticeship and achieving a journeyman status with Sawchuk Developments, a leading commercial construction contractor based in Kelowna. Since 2010, Derek has been devoted to studying the intricacies of real estate, becoming both a student and a teacher. He has gained a deeper understanding of the complexities of real estate, including residential, commercial, and industrial properties, which allows him to offer a broad range of services to his clients. In his free time, Derek enjoys exploring the beautiful lakes that can be found all over the Okanagan Valley, which gives him unique insights into different neighbourhoods and communities. He's also an avid golfer and enjoys hitting the slopes at Big White. But these hobbies are more than just leisure activities – they allow him to build relationships with clients and understand their needs and goals on a personal level. Derek is committed to partnering with and investing in Okanagan real estate. He believes in building a vast network of clients, friends, and business associates, all with a shared focus on real estate. If you're looking for a dedicated and experienced real estate agent in the Okanagan Valley, Derek looks forward to connecting with you and answering any questions you may have.