homebuyers

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/”

The real estate market in Vancouver no longer ‘highly vulnerable,’ CMHC says

OTTAWA – Canada Mortgage and Housing Corp. has reduced the Vancouver housing market vulnerability score to “moderate,” marking the first three-year shift as prices eased.

The federal agency states in a report that Vancouver’s “evidence of price acceleration” has eased to low, prompting a downsizing as “extremely vulnerable” after 12 successive quarters.

“While home price growth has considerably outstripped rates backed by fundamentals over the previous few years, these imbalances have reduced in various sections of the resale industry through fundamental development and reduced home prices.,” CMHC said in its latest Housing Market Assessment report.

The agency said a moderate degree of vulnerability continues at the domestic level, but imbalances have declined over the previous year between house prices and the basics of the housing market. Some markets like Toronto and Victoria, however, are at greater risk.

Nationally, The inflation-adjusted average cost reduced by 5.6% year-over-year in the first quarter of 2019 from the same period a year previously, CMHC said.

In the previous quarter’s report, CMHC lowered its rating for Canada’s overall housing market from to moderate from high vulnerability – where it had stood for 10 consecutive quarters – as mortgage stress tests introduced last year made it harder for homebuyers to qualify and eased price acceleration.

The recent market forecast by the Canadian Real Estate Association published in June projects that the domestic average cost will drop to about $485,000 by the end of this year, compared to the 4.1% decrease reported in 2018.

Recent statistics from Greater Vancouver’s Real Estate Board showed that a home in Metro Vancouver’s benchmark cost dropped to $998,700 in June, the first time since May 2017 it fell below the $1 million mark.

The Bank of Canada in May also said that housing prices in the key markets of Vancouver and Toronto have cooled, but imbalances in real estate markets are still an important vulnerability for the overall financial system.

The vulnerability assessment of CMHC is based on several criteria including cost acceleration, overvaluation, overbuilding, and overheating. It examines the degree of vulnerability and aims to define housing market imbalances.

Toronto, Hamilton and Victoria continue to be highly vulnerable, but in all three markets, overheating, price speed and overvaluation show signs of decline.

Source URL: “https://bc.ctvnews.ca/vancouver-real-estate-market-no-longer-highly-vulnerable-cmhc-says-1.4533155”

Find The Best Neighborhoods For The Future in Greater Vancouver

With Greater Vancouver real estate prices among the highest in Canada,homebuyers are increasingly looking for value beyond just bricks and mortar, and quality of life is emerging as a key factor in finding the right neighbourhood.

 

The quality of life develops as a main factor in picking the right neighborhood as homebuyers seek value beyond bricks and mortar.

So, what provides an advantage to a neighborhood in attracting fresh inhabitants??

According to a RE/MAX 2019 Best Places to Live Liveability Report, six in 10 Canadians put easy access to shopping, dining and green spaces at the top of their liveability criteria. Proximity to public transit, work, preferred schools, and cultural and community centres were also listed as important because Canadians spend more than two-thirds of their time in their own neighbourhood, with the rate being even higher among baby boomers compared to Gen Z, millennials and Gen Xers.

RE / MAX brokers in Vancouver listed Main, the West End and Kerrisdale among the top three neighborhoods for access to green areas and parks, walkability, retail and restaurants, and ease of moving / public transportation with Main standing out as the “hidden gem.”

 

 

Mount Pleasant, Downtown-Vancouver West and Renfrew-Collingwood are the top three neighborhoods for affordability and excellent housing stock.

Christopher Alexander, executive vice-president, RE/MAX of Ontario-Atlantic Canada says when buyers are looking for a home, the search begins at the neighbourhood level.

In terms of cost, some Greater Vancouver neighborhoods have turned significantly in favor of buyers, according to a fourth-quarter 2018 survey of the Zolo real estate website, whose list of top 10 neighborhoods to purchase a single-family home included Marpole in Vancouver West, Saunders and Lackner in Richmond, West Cambie and Steveston North, Hastings East and Collingwood in Vancouver East, Queen.

Source:URL: “https://vancouversun.com/homes/buying-selling/finding-the-best-up-and-coming-neighbourhoods-in-greater-vancouver”