What you need to know about the changes to the mortgage laws
Buying a home can be a daunting process, even if you’ve been through it before. For new homebuyers, it can be overwhelming. A home is one of the biggest investments most people will make in their lifetime. The terminology can be unfamiliar. Understanding interest rates and the real estate market doesn’t come easy. On June 1, the mortgage stress test rate got tougher for homebuyers. Changes to mortgage laws can easily change your plans. Here’s what to know and how a Cornwall real estate agent can help you find the right home.
What Is the Mortgage Stress Test?
A stress test plans for the worst-case scenario. The mortgage stress test was introduced in 2018 as a way to make sure homeowners could afford their mortgage if interest rates spiked. Homebuyers must show that they can afford a mortgage at the qualifying rate, not necessarily today’s interest rate. If you plan to get a federally regulated bank loan, you must pass the stress test. The formula is based on your down payment, but the bottom line is that you must qualify for a home loan under a higher interest rate than you may actually pay.
How Does the Mortgage Stress Test Affect Homebuyers?
The mortgage stress test applies to any Canadian homebuyer who is applying for a new mortgage or renewing one. It’s designed to prevent homebuyers from taking on too much debt and to avoid a foreclosure when the interest rates rise. You will need to be able to pay your mortgage at a higher rate. Unless you have a high income and low debt amount, you may not be able to borrow as much money under the stress test. On June 1st, 2021, the rate increased from 4.79% to 5.25%. It reduces the mortgage amount most households can qualify for by about 5%.
A Trusted Real Estate Advisor
If you’re thinking about buying a home, a real estate agent is your advisor who can help you understand the homebuying process. Your real estate agent can help you find a reputable mortgage broker that can find the right mortgage for you. There are a lot of factors that go into buying a home. While I can’t completely de-stress the process, I can make it less intimidating. Let’s work together to find your dream home. I’ll feel privileged to be your Cornwall real estate agent.