Canada Real estate

The 2019 Canadian Mortgage Stress Test

Meeting the mortgage demands and being approved is already challenging enough, but securing a mortgage in 2019 is even more of a feat thanks to the recent mortgage stress test.

Let’s look at the new mortgage rules in greater detail and how it impacts home buyers in 2019.

Explained Canadian Mortgage stress test

In order to pass the mortgage stress test, You will need to qualify for your loan interest rate plus 2% or the present five-year benchmark rate of the Bank of Canada, whichever of the two is greater. As of this writing, The five-year benchmark rate of the Bank of Canada is 5.34 percent and has existed since May 2018.

For example, if you are applying for a mortgage at a rate of 3.65%, then your lender will assess you as if you were paying your home loan at 5.65% (3.65% + 2%) since 5.65% is greater than the Bank of Canada’s five-year benchmark rate.

Because of this stress test, Most new homebuyers have had their purchasing power reduced by as much as 20 percent because they are only eligible for a reduced loan at the stress-tested mortgage ratesThe fresh stress test regulations have also rendered refinancing or renewing their mortgage more hard for present homeowners.

How to Prepare For the Mortgage Stress Test

Lenders use a few key metrics when assessing borrowers to make sure they’d be able to pass the stress test and manage mortgage payments, including the gross debt service ratio (GDS) and total debt service ratio (TDS).

Gross debt service ratio (GDS) – Your GDS is the proportion of your pre-tax revenue needed to pay all cost of accommodation. In addition to your stress-tested monthly mortgage payment, your lender will look at the expense of all other monthly expenditures, including condo charges, utility bills, and property taxes.

Your gross monthly revenue will add all these expenses together and divide them. Ideally, lenders want a proportion not exceeding 32%.

Total debt service ratio (TDS) – All of your debts will also need to be factored into the equation, so lenders will look at your TDS as well. This is how much of your monthly revenue is required to cover your debts properly.

To better prepare yourself for the stress test, consider taking the following actions:

Pay down your debt. As already mentioned, Your lender will examine all the debt you presently carry and determine if you would qualify for a mortgage or not. The smaller your current debt load, the lower your TDS will be.

In turn, The findings of your stress test may be more favorable. To prevent paying so much in interest fees, focus first on paying down your high-interest debt (such as your credit cards).

Apply for a smaller loan amount. Be realistic about how much house you can actually afford. You might have your sights set on a home in the $900,000 price range, but if you look at homes in the $700,000 range instead, you might make things much more financially feasible for yourself.

This will not only improve your chances of passing the stress test and obtaining a mortgage approval, but it can also free up more of your income and prevent you from going “house poor.”

Crunch some numbers. Ask yourself if you can afford to pay an extra $500, for example, In mortgage payments if rates raise suddenly after approval.

You could be comfortable making monthly mortgage payments of $1,000, for instance, But what if you had to throw an extra $500? Would that be doable? Or would that throw you into a financial frenzy?

That’s precisely why this stress test was carried out. In the near future, if you are confronted with greater prices, your lender would want to make sure that you are still able to create complete payments each month rather than face default.

 

Source Link : “https://loanscanada.ca/mortgage/the-canadian-mortgage-stress-test-in-2019/”

Thinking about investing in commercial property in Canada? Here are 5 tips for new investors

To own commercial property, you don’t need to be rich, and there are more opportunities with the downturns in the Vancouver and Toronto markets.

Chris Catliff, The President and CEO of Blueshore Financial, says for middle-class investors, there are other methods to enter the property business.

He lately shared five tips with those considering building up their commercial real estate retirement portfolio.:

  1. Start small with a REIT

To own commercial property, you don’t need to be rich, Catliff said. “In fact, my son is already invested in a Tax-Free Savings Account with a Real Estate Investment Trust (REIT).”

A REIT is a company that owns, operates and pays dividends on a variety of real estate assets on behalf of a pool of investors who purchased shares or stocks.

“They have relatively high yields compared to the broader market, or bonds or Guaranteed Investment Certificates (GICs),” he said. They’re typically riskier than government bonds or GICs but much less risky than tech stocks.

The purchase of shares in a REIT basically includes a collection of assets across the nation.Some REITs focus on the office sector, others on apartment or industrial or retail properties

“That diversifies your risk,” he said, adding that most REITs can be purchased through a stock broker, financial advisor or online through your direct investing platform.

  1. Invest in a strata unit

For bolder middle-class investors — and ones who don’t mind a bit more work — you could buy your own strata unit in a commercial development, Catliff said.

Like with condo residential buildings, many developers build strata commercial buildings in various asset classes including office, retail and industrial..

  1. Buy in a place you can visit

Catliff said he likes to own units in buildings he’s familiar with and can visit. “I purchased business units on my drive to work so I could see them twice a day..”

That’s so you can see what kind of development is taking place around your building and stay familiar with the market and the other tenants, he said.

  1. Think urban

More than three-fifths of immigrants to Canada are settling in Toronto, Vancouver or Montreal, Catliff said. That means demand for homes, jobs and work space will continue to grow along with the population in those areas.

More demand for your space means less cash flow risk.

Catliff said it’s important to understand the supply and demand elements of your local market. In places like Vancouver and Toronto, demand for small industrial warehouse space or small light-manufacturing units has never been stronger.

Demand is also high for small street-front retail spaces in urban cores. There will always be people trying to buy themselves a job with a business like a sandwich shop or small restaurant, Catliff said. “There is just a lineup of people waiting for that kind of space.”

  1. Do your homework

 

“You really have to consider location,” he said. “You’re looking for high traffic. How easy is it to rent out to somebody else? Anything downtown pretty much has a lineup of people. If it’s in Toronto, Montreal, Vancouver, Kelowna, you can always rent something out, it’s just a matter of what return you get.”

In the suburbs, anything you purchase should be considered for its future redevelopment potential, he added. “In the burbs… you’re (often) holding land until development comes to you.”

Source URL: “https://vancouversun.com/business/commercial-real-estate/thinking-of-investing-in-canadian-commercial-property-here-are-5-tips-for-new-investors”