Mortgage Rules Stress Test – More Changes on the Horizon

The only thing constant in the Vernon real estate business is change. And once again – we have a change in the mortgage rules that will affect many real estate buyers.

As of January 1st, 2018, the government has implemented a “stress test” on conventional mortgages. There seems to be some confusion as to what this means, and as to who will be affected.

First of all, it is important to note that this change only affects those home buyers (or people looking to refinance) who wish to purchase/refinance and have a 20 percent or greater downpayment. For example, someone purchasing a $500,000 home and has a $20,000 or greater downpayment. This does not affect buyers that have less than 20% of the purchase price as a downpayment, as those buyers were already required to qualify for the stress test.

This means that anyone with a 20% or greater down payment on a home will be required to qualify for their mortgage based on calculations on the greater of either the 5 year posted rate or 2% higher than their contract rate. Often the posted rates are far more than the rate agreed upon with the financial institution. For example, if you have a pre-approval for a 3% mortgage rate, the regulations will now require you to have the ability to afford to pay your payments on your mortgage as though the rate on your mortgage was 5%.

Another example: The interest payment on a mortgage of $300,000 at 3% with a 25 year amortization would be $1420 per month. At a 5% interest rate, that same mortgage would cost $1745 per month. With these new rules, you would be paying $1420 per month, however you would have to qualify for the mortgage as though it were $1745 per month.

As of January 1, 2018, regardless of how little or how much you have saved as a downpayment, buyers must qualify at the higher stress test rate. We strongly recommend that if you are thinking of buying in the near future, you take this into consideration.

Please note that pre-approvals in place will not protect you from this change.

If you believe these changes may affect you, local mortgage professionals are recommending to action well before Dec 1, 2017 as often lenders implement the new rules early.

In a nutshell, there have been significant changes to the mortgage lending market every year for the past 10 years. We shall see you here again next year, similar time, same place, likely with more changes, whether we like them or not!

For more information on how these changes can affect you, please contact the Salt Fowler Team today for this and other Vernon real estate updates at 250-549-7258 or

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