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Canada’s mortgage stress test rate drops, third time since pandemic began

Jackie Bowen Uncategorised August 17, 2020

Canadians saw their buying power increase last week when the central bank’s rate fell for the third time this year to 4.79% (from 4.94%), easing a key stress test faced by borrowers.

While most borrowers do not pay anything close to the benchmark posted rate for a mortgage, the rate is used when assessing borrowers as part of a financial stress test.

With this move you’ll be able to qualify for just a little more than you could before.

A family with an annual income of $100,000 and a 10% down payment would have qualified for a home valued at $523,410 under the 4.94% qualifying rate. Under the new qualifying rate of 4.79%, they can now afford $531,230.

If you’d like to know what impact this drop has made on your qualification, please give me us a call.

Genworth and Canada Guaranty Won’t Adopt CMHC’s New Mortgage Rules

Following the announcement of CMHC’s new mortgage underwriting rules last week, Canada’s other two mortgage insurers, Genworth Canada and Canada Guaranty, have confirmed that they will not be following CMHC’s lead.

Genworth Canada believes that its risk management framework, its dynamic underwriting policies and processes and its ongoing monitoring of conditions and market developments allow it to prudently adjudicate and manage its mortgage insurance exposure.

Mary Putnam, VP, Sales and Marketing of Canada Guaranty said that “recent insurer announcements relating to down payment and minimum credit score represent a very small component of Canada Guaranty’s business, and we will continue to be prudent in these areas. Given implementation of the qualifying stress test and historic default patterns, Canada Guaranty does not anticipate borrower debt service ratios at time of origination to be a significant predictor of mortgage defaults.”

Some believe that the announcement from Genworth and Canada Guaranty is a positive one for borrowers who will continue to have some options in the markets should they not be able to meet CMHC’s stricter qualification standards.


CMHC tightens requirements for homebuyers

Qualifying for a mortgage is about to get harder for anyone who doesn’t have at least a 20% down payment for the purchase of a home. Canada Mortgage and Housing Corporation (CMHC) is tightening its rules to qualify for an insured mortgage.

Starting July 1st, 2020, CMHC will be implementing the following changes:

  • Establish minimum credit score of 680 for at least one borrower (up from 600)
  • Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to standard requirements of 35/42
  • Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes. In other words, buyers will no longer be able to borrow money for a down payment.

CMHC is also suspending refinancing for multi-unit mortgage insurance, unless the money is being used for repairs or reinvestment in housing.

At this time CMHC is the only insurer who has noted the implementation of these changes. So the question remains, will Genworth and Canada Guaranty follow suit or will they continue to be competitive?

Be sure to stay tuned..

Bank of Canada cuts key rate to 0.25%

The central bank lowered its policy rate Friday by another half a percentage point to 0.25 per cent, adding in a statement that the unscheduled decision brings the benchmark as low as policy makers are willing to take it for now.

The move was necessitated by quickly deteriorating conditions, including a flood of new jobless claims last week.

The Bank of Canada last cut rates to these levels in 2009, during the global financial crisis

The next question is will the banks follow suit and lower their prime rates…

As of March 28 2020:

Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Bank of Montreal have cut their prime lending rates 50 basis points to 2.45 per cent from 2.95 per cent in a move matching the Bank of Canada’s latest interest rate cut.

The prime rate underpins a slate of variable-rate loans, including mortgages, which impacts the cost of borrowing for a range of financial products.


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