New Home Opportunities Beyond the Stress Test

Posted on 07/13

One of the best investments you’ll ever make is buying a home. While many young families and couples in the Greater Toronto and Hamilton Area have been pushed out of the new housing market over the last few years due to soaring prices, a recently mandated government mortgage stress test seems to put home ownership even farther out of reach.

What is this stress test? Federally regulated lenders such as banks must apply the mortgage stress test for every applicant without mortgage insurance. The applicant must calculate the amount of the loan at the current Bank of Canada 5-year benchmark rate or the mortgage rate negotiated, whichever is higher, and then add 2% – the margin for additional stress. This ensures that borrowers are not over-extending themselves, even if interest rates rise over the next few years from the near-record lows they reached during the recent real estate boom. The stress test was initially for people applying for mortgages who were prepared to offer less than a 20% down payment. The government changed this rule on October 17th, 2017, stating that beginning in January 2018, everyone looking to purchase a home with a mortgage from a federally regulated lender would require a stress test. Credit unions and other lenders that are not federally regulated are not required to apply a stress test but may choose to do so.

Since the mortgage stress test was put into effect, home buyers are finding they can’t afford as much home as they might have since the new rules came into effect. Shaun Cathcart, a senior economist at the Canadian Real Estate Association (CREA), said ‘Some buyers are now having to shop further down-market.’ Cathcart said the stress test is continuing to push Toronto home buyers to ‘drive until they qualify’ to places like Hamilton or Brantford.

So even as Hamilton home prices climb, nearby Brantford offers even more value for your new home-buying dollar. Brantford was recently selected by the MoneySense financial website as the number one city to buy real estate in Canada. LIV Communities has a superb selection of homes within its Brantview Heights community in Brantford offering one of the rare opportunities to buy a detached home at just over $500,000. It’s easier to pass your mortgage stress test in Brantford!

Don’t be intimidated by the stress test. It actually works in your best interest by ensuring you can afford a home in a rising interest rate environment and being more financially secure. And by choosing a home at Brantview Heights, you get more home in a safe community with all the convenience of big city amenities.

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