Don’t kill the mortgage stress test
But do modify it...radically

The dreaded “stress test”….

Is it the stress test that is preventing people from buying homes in Canada? Certainly, it has a big impact on affordability but I would argue that the seemingly uncontrollable rising  house prices and/or current level of home prices have much more to do with getting into a new home than does the stress test.

The stress test should be modified to take into consideration the current leveling of interest rates; the fact that incomes rise within the 5-year term of a mortgage; and that principal is being paid down prior to the maturity of any mortgage term.  Perhaps these points should lead to a stress test that inputs a rate of 1% over contract vs. the current 2% over the contract rate? There is also many aspects of the approval process that are relatively unspoken of compared to the details of the “stress test” ie. the increased scrutinization of income; down payment; and credit vs a time not that long ago.

Having said that, I would like to see more ( dare I say ) regulation on the side of the setting of house prices and the buying process. How about introducing mandatory financing and home inspection clauses? Overhauling the pre-approval process to mandate financial institutions AND insurers to fully underwrite the application and evaluate the home in consideration? …..and no definitely NOT a 60-second pre-approval ( for shame ).

There is much more at play here than what the industry focuses its attention on, what the public is aware of, and how the government is reacting to appease the masses.  In my opinion, any one of the items above would move things in the right direction and proper employment of all and then some would help us all out a lot. I would like to see the conversation move away from the stress test to a more constructive criticism of the whole buying process and approval process where too little attention exists.

If any of these points interest you and you would like me to dive deeper or write more on the subject, please let me know by emailing me at joe@biggerpiggeybank.com

Cheers,

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