With housing prices skyrocketing over the past few years, many Canadians have been struggling to get their foot into the housing market. However, in attempts to aid Canadians in finding an affordable home, the Canadian government has just announced that they are implementing new 'mortgage stress test' rules on Canadian home loans. These new rules will allow homebuyers throughout Canada to be approved for a bigger mortgage, making it easier for homebuyers to afford a home.
The stress test was first put in place a few years ago and was created as a 'test' that all Canadians must pass before being approved for a mortgage. The test was created to ensure that a homebuyer would be able to afford their interest payment if the rates increased.
This stress test would determine whether or not you were qualified for a mortgage based on whether you could afford your mortgage interest rate plus 2 percent, or the 5-year-benchmark rate that is published by the Bank of Canda.
However, this stress test made it harder for some Canadians to afford a more expensive home. To make matters worse, according to CBC, the bank rate used in this test hasn't changed since it rose to a whopping 5.34 percent in May 2018.
This week though, this bank rate was lowered to 5.19 percent, which in turn, lets Canadians now qualify for a bigger mortgage than they could before.
While it won't increase the average homebuyers mortgage budget by much, it does now give Canadians a little bit more wiggle room. According to Financial Post, if the homebuyer has a yearly income of $50,000, they will now be able to afford a house that is roughly $4,000 more expensive.
While if the homeowner is earning $100,000 a year, they will be able to purchase a home that is about $8,300 more expensive.
This is only the beginning. In the past month, the Government of Canada has been working on other initiatives to make homebuying more affordable for Canadians.
The Canadian Government has announced that starting on September 2, 2019, a new incentive will take place that will reduce the monthly mortgage payments that are required for first-time homebuyers.
This new incentive will only be available for first-time homebuyers with an annual income of up to $120,000 but could save buyers more than $280 a month on mortgage payments.
While this new incentive will make it easier for first-time homebuyers, it does eventually need to be paid back in the twenty-five years after the house is first purchased.