Mortgage Professionals Canada (MPC) has been calling for the stress test rates to be uncoupled from the Bank of Canada’s posted 5-year fixed rate since the insured stress test was introduced in 2016. The association welcomed the announcement, saying the use of a floating rate will make the stress test more dynamic and responsive to changing markets and bond rates. “We thank the government for acknowledging this issue and making these changes,” Paul Taylor, President and CEO of MPC, wrote in an email to membership. “We do, however, still consider a two percent (2%) buffer to be an onerous test level given the economic realities globally”. Taylor said the association will continue to ask for additional support measures for those
At the same time, the Office of the Superintendent of Financial Institutions (OSFI) delivered its own announcement that it is considering the same benchmark rate for its stress test on uninsured mortgages (those with more than 20% down payment). “The proposed new benchmark for uninsured mortgages is based on rates from mortgage applications submitted by a wide variety of lenders, which makes it more representative of both the broader market and fluctuations in actual contract rates,” OSFI said in its release. The move was preceded by hints from OSFI’s Assistant Superintendent, Ben Gully, who said in a recent speech recently that “the posted rate is not playing the role that we intended.” He added that the “difference between the average
The federal government announced on Tuesday it will be changing the benchmark qualifying rate used for Canada’s insured mortgage stress test. The change, which will take effect April 6, 2020, means borrowers with insured mortgages (typically those with less than 20% equity) will need to prove they can afford monthly mortgage payment based on a rate equal to the weekly median 5-year fixed insured mortgage rate plus 2%. The Department of Finance confirmed that rate would currently equal 4.89%, 30 basis points less than today’s benchmark qualifying rate of 5.19%, which is based on the Big 6 banks’ posted 5-year fixed rates. Critics say the big banks have been keeping their 5-year fixed posted rates artificially high since they are
2020 is here! Get your finances off to a good start.
Some tips to get your financial year off to a good start
Time to pinch the financial waist and get lean for 2020. Here are some tips to get you going. Take stock in your current situation. I recommend taking a good look at your spending patterns and trying to figure out where some cuts can be made without sacrificing a good lifestyle and living within your means. This can be easily done by downloading your last 90 days of bank history into a spreadsheet and adding up and analyzing your spending. You may be surprised at the result. It’s also a good time to review your investments and your financial plan. Contact us at biggerpiggybank.com if you need the help or guidance of our full-time advisor. Set your short and long
The end of your mortgage term is a great time to pause and take a good look at your financial situation. I will outline some of the key points you should consider at this time below: -is there a need to access the equity in your home to pay off debts or invest? This is a good time to increase the mortgage to facilitate such things as the existing mortgage term does not have to be “broken” which incurs penalties to do so. We can take a mortgage to 80% of the current value of the home. This amount less the existing mortgage balance is the amount of “equity” you can take out of your home. -do you have extra
Stress-Test Rate Drops After a Year of No Change
The benchmark posted 5-year fixed rate, which is used for stress-testing Canadian mortgages, fell yesterday in its first move since May 2018.
The rate change came as a surprise to most financial observers, since it’s based on the mode average of the Big 6 banks’ posted 5-year fixed rates. And there have been no changes among the big banks’ 5-year posted rates since June 21. As reported by biggerpiggybank.com, the Bank of Canada explained today’s move as follows: “There are currently two modes at equal distance from the simple 6-bank average. Therefore, the Bank would use their assets booked in CAD to determine the mode. We use the latest M4 return data released on OSFI’s website to do so. To obtain the value of assets booked in CAD, simply do the subtraction of total assets in foreign currency from total assets in total
Your home is more than just the place you hang your hat at the end of the day—in many cases, it’s one of your most valuable assets. And yet, when it comes to accessing the equity in your property for projects like home improvements or to finance your personal business ventures, you may find yourself among the many homeowners who are unable to do so because of the rigid lending constraints imposed by traditional financial institutions. This is especially true when it comes to lending for business-for-self individuals and those whose occupations provide a variable income that falls outside of typical payroll arrangements. But that doesn’t make sense! If a large share of your net worth is tied up in
The latest news on debt and financial distress in Canada
retructuring debt by consolidation could be a winning strategy
A significant number of Canadian households reported being late on a debt payment or missing it entirely, according to a new report from Statistics Canada. The 2016 data from the agency’s Survey of Financial Security shows that more than 1-in-10 Canadians (11%) with some form of debt reported skipping or making a late non-mortgage payment. According to StatsCan, those more likely to miss or skip a debt payment include: Those aged 55 to 64 years old (8.1% missed payments compared to 3.9% of 24-to-44-year-olds and 4.2% of 45-to-54-year-olds.) Those in the lowest quintile of income groups (6.8% missed payments compared to 2.1% of those in the highest quintile) Those living in the Prairies (6.8% missed payments compared to 3.2% of
CMHC ( Canada Mortgage and Housing Corporation ) officially announced yesterday to release details of its First-Time Buyer Incentive ( FTHBI ). Here is a Recap: CMHC will contribute 5% of a down payment for the purchase of an existing home or 10% for the purchase of a new build The mortgage must be default insured The applicants’ household income must be less than $120,000 No monthly payments are required, and this amount can be paid back at any time, or upon the sale of the house CMHC shares in both the proportionate gains or losses in home value The insured mortgage plus incentive cannot be more than four times the participants’ household income (roughly a $565,000 maximum purchase price
Why Canada’s mortgage regulator thinks the stress tests are ‘working’
But house prices continue to climb....so IS IT "WORKING" ??
The federal financial-system regulator responsible for creating Canada’s mortgage stress tests says the rules are “working,” countering repeated calls from the industry for reform. “Since the B-20 revisions were put in place, lenders are approving fewer mortgages for the most highly indebted or over-leveraged borrowers,” reads a statement the Office of the Superintendent of Financial Institutions (OSFI) issued this week. Guideline B-20, which became policy in January 2018, included a so-called stress test for uninsured mortgage applicants. The test requires borrowers with downpayments of 20 percent or more to qualify a rate that is 2 percentage points above their contract rate. To obtain a five-year fixed-rate mortgage at 3 percent, for example, a borrower would have to show they could