The Canadian Mortgage market is experiencing a roller coaster ride of epic proportions ever since the early 2020 decline of Interest Rates. Earlier this year The Royal Bank Of Canada decided to steadily raise the Interest Rates to tackle the inflation. The current Mortgage Market is buzzing with rumours of the Interest Rates being at their peak. Here we are discussing the relevancy of these Stress Tests.
How the Stress Test works
The Canadian Mortgage Stress Test requires both insured and uninsured borrowers to present proof of being able to pay monthly payments based on the rate of 5.25% or two percentage points above their contract rate, whichever is higher at the time. This has become a problem today as borrowers are being tested for rates above 6% and 7%.
Why the spike in Interest Rates
We understand that the Interest Rates were hiked to control the overpricing in the real estate market and bring about a balance to this frenzy. It had to be done to curb the rate of inflation that was not witnessed since the 1980s.
To give some credit to The Royal Bank Of Canada, the increase in Interest Rates has resulted in declining prices of properties. Still, these are tough times for common Canadians as they are still struggling to pass the Mortgage Stress Test.
Where’s the problem
The period of early 2020 to 2021 was a golden opportunity for Canadians to buy homes for themselves as the Interest Rates were at a record low but still dreams of a lot of them were shattered due to the prevailing Mortgage Stress Test. Although the actual Interest Rates were low, they still had to withstand the Mortgage Stress Test Rates which stood considerably high at 5.25%. This was the story of the borrowers wanting to go with the fixed rate mortgages.
Earlier this year, the fixed rates started to swell before the variable rates which made people opt with the latter as that was the only way they could qualify for a mortgage. In fact, data released from the Canada Mortgage and Housing Corporation indicates that about 56.9% of the mortgages taken out earlier this year were variable rate mortgages. All thanks to the 5.25% rate of Stress Test for variable rate mortgages that was considerably lower than the rate at which people were Stress Tested if they opted for the fixed rate mortgages.
Even this scenario has drastically changed since the 100 basis points increase in Interest Rates introduced on 13th July this year. Even the variable rate mortgages have started to look out of reach for a lot of people, simply because of the steep asks of the Stress Test.
Alternatives
Private lenders are a very good alternative for such people in the current situation where they are not able to qualify the Mortgage Stress Test. Private lenders usually do not require such tests and are quite easy to work with, although their interest rates may be higher.
Till there is a substantial change brought about to the Mortgage Stress Test, one cannot simply wait for it to happen. You need a time-tested Mortgage Broker to guide you through this confusing situation. Their experience and industry connections make them the perfect professionals to take well calculated decisions despite the financial turmoil going on. You can count on Pankaj Aggarwal to safely assist you towards your goals with minimal effort from your side. His dedication for work and exceptional customer handling make him the perfect Mortgage Broker, what are you waiting for? Contact us now to discuss further details!