On this weeks Live with Melody, she chats about the new stress test rules, how it may impact the real estate market for 2020, and what they actually mean! Keep reading to find out, or scroll to the bottom to watch the video!
What is all the hype going on about the new mortgage stress test rules? With the announcement happening with the new mortgage stress test rules, lets rewind and talk about the actual rules from before. So if you don’t remember about four to five years ago, the mortgage rules changed dramatically in terms of how to qualify for a mortgage. Lenders always use your total debt service ratio, what money that you make, and some other things. Make sure you haven’t claimed bankruptcy, and things like that.
So they usually have all those things in play. What they did last time was they had a huge change, so even though nothing happened, they were now qualifying you on the fixed posted rate, which means it changed most peoples buying power by about $100,000. So that was a huge blow to our already suffering economy at the stage. So a lot of home buyers had a lot of struggles with home buying as they went from a $400,000 house to now only a $300,000 house. Then the changes just kept happening, more and more tiny rules just kept getting changed along the way but now fast forward to today or last week when they made the announcement.
As of April 6th, 2020, these new mortgage rules will be active. Instead of being approved on the fixed posted rate, which made people have a hard time qualifying. The new rule is +2% on the contract rate. So when you get a rate of 2.69% they’re adding 2%. Now it’s not completely clear if it’s a moving rate, or a fixed rate, because sometimes the rates change. Sometimes adding two base points to the rate might actually make it higher than the fixed posted rate. I know a lot of mortgage brokers are still trying to figure out how this is supposed to play out in terms of what’s happening. What does it really mean? Is it going to be beneficial to clients?
If you just take it as an example, today I was talking to Kris, one of the mortgage brokers that I work with, so very important – talk to your mortgage broker FIRST to get complete clarification for you, but it’s about $10-15,000 increase in buying power. Instead of $400,000 you’re looking at $410 – 415 000. In the big grand scheme of things, that’s actually not a huge difference, it’s clearly not going back to the $100,000.
What’s interesting and what people are talking about right now that would make a huge difference is actually changing the amortization. If we go back to get a first-time home buyers a 30-year amortization that will actually allow home buyers to have more buying power because their mortgage payments will be a lot smaller, and more affordable. That change could actually impact the buyer buying than quite a bit more than just the stress test change. I believe that the new mortgage stress test change is a good move in the right direction, but we just have to keep going. There are still rumors and it’s not been solidified yet if the mortgage amortization going to change.
How is it going to affect the real estate market? I do know that there’s a lot of positivity. Down south in Calgary, as much as we have our rivalries against them, our real estate market typically follows theirs. We are typically 3-6 months behind their market. All of my colleagues down south have noticed that the market has started to recover in the last few months, which is a good sign for us. If we do follow, like we typically do, it means we should have a busy spring. If you take a look at the real estate market now, spring is already happening. I know winter is still very much here in terms of the weather wise, but we put up a listing in Ambleside and it sold pretty quickly for being in a market like this. We are hoping this is just a sign of things to come.
Typically this time still a bit slower, but the market is moving. There are people out there looking to buy and move in before summer. With the new changes in the mortgage stress test rules, the spring market beginning, a “recovering market”, your odds of selling have also increased quite a bit. I am hugely optimistic! Don’t wait any longer to buy a home, this is the time now. Call me today as things are starting to look up!
If you want any more information, feel free to send us a message or call Melody today at 780-945-7821