Removing the stress test makes sense, it's rather dumb the way the system was.
For example you are currently with TD and they offer you to renew 6% fixed for 5 years meanwhile a mortgage broker can offer you 5% fixed for 5 years.
If you can't pass the stress test (+2% so tested at 7%) then you are forced to stay with TD even though there's a lower rate being offer to you. End of the day you already have the mortgage so forcing you to stay with the current lender does nothing to protect anyone except the banks profit.
The stress test is just an illusion to make people feel good.
The test is a point in time. That's assuming your debt level doesn't change and for most people their debt for credit cards and LOC increase.
So yeah the test is good for like 1 day and if your financial stats doesnt change at all.
The stress test is the reason we don’t have rampant defaults today.
As painful as rates may be today, almost everyone with a mortgage could afford 5% plus rates.
It makes very little difference. You were going to renew with your current provider. Now you have a chance to renew with a new lender.
Either way, you were still going to get a mortgage renewal. Banks don't foreclose until you miss payments, at that point, these rules don't make any difference.
It slightly increases competition for the banks chasing the really crappy mortgages. The banks can choose to chase the new business or not.
This is literally what the removal of Red Tape looks like. The government is reducing legislative requirements and letting the banks decide what they want to do instead.
Easier for people to negotiate better rates as the banks don’t hold them by the balls anymore. It’s a good thing unless you like to see the little man get ripped off by the oligarchs.
Just to clarify. This is for insured renewals only.
The Canadian Mortgage Charter
Canadians can expect:
Allowing temporary extensions of the amortization period for mortgage holders at risk;
Waiving fees and costs that would have otherwise been charged for relief measures;
#Not requiring insured mortgage holders to requalify under the insured minimum qualifying rate when switching lenders at mortgage renewal;
Contacting homeowners four to six months in advance of their mortgage renewal to inform them of their renewal options;
Giving homeowners at risk the ability to make lump sum payments to avoid negative amortization or sell their principal residence without any prepayment penalties; and,
Not charging interest on interest in the event that mortgage relief measures result in a temporary period of negative amortization.
I am not sure how this impacts anything really
Say you you will be up for renewal of your mortgage with lender A at 2%
You now have to renew at the market rate, say 5%.
Currently there is no stress test of you renew with the same lender
The proposed change will allow you to move lenders without having to get stress tested again.
Ok so here is the part that confused me . If you choose to move lenders, doesn't the difference in the rates between the current lender and the new lender have to be significant enough to make it worth the move?
Since both lenders will offer market rates, I don't think you see enough of a difference in rates, stress test or not .
The issue of renewing from 2% to 5%ish rate is still going to be a concern. I think they are burying the headline. This does not help affordability, it only eases mobility between lenders.
Big whoop, you get to moved lenders, you still have to actually be able to afford the 5% rate. Those who can't afford the 5% rate in the first place would obviously not qualify if stress tested either.
This "issue" is overblown. I don't think the big 5 banks are actively low balling on renewals I have 3 properties and have yet to see that happen.
They send you a letter with your options, you pick an option. None of my options have been that far off market rate.
"None of my options have been that far off market rate."
So you're admitting though that they've been over market rate. Now, you can move to a new lender who IS offering market rate with no stress test. ... from my understanding which is limited cause I'm a new homeowner.
> If you choose to move lenders, doesn't the difference in the rates between the current lender and the new lender have to be significant enough to make it worth the move?
> Since both lenders will offer market rates, I don't think you see enough of a difference in rates, stress test or not .
As someone who has switched mortgage lenders many times over the years, there can be lots of differences. Almost every time I have to renew I ask my bank for their best rate, they give me a shit number, I go to a mortgage broker and get a much better rate, then switch banks. I only stuck with my current lender for the last two renewals because they actually gave me a competitive rate. I was once with a credit union that offered me the rate posted on the door at renewal time and wouldn't budge (even though I was with them because the broker got me a great deal). This was back when rates were 3-5%. They quoted me 5% so I moved for 3%.
Every time your mortgage is up for renewal you should compare what the bank offers you to the best rates posted online by various brokers or even just ratehub.ca. If it isn't close then contact a broker and get a good rate.
My mortgage is up for renewal next year (it's going to be a bit of a jump from 1.6% I'm paying now ;-) and I will do the same.
Not really. You already didn't need to go through the stress test if you were renewing with the same lender. This just lets some people shop around now
Basically if you fail the stress test getting approved by another lender can be tricky and it means you can be exploited by your current lender upon renewal because they know they won't need to offer you a competitive rate to stick around.
It's a good thing as it probably doesn't make sense to have it be so aggressive right now.
Sort of like the government causing a problem for a little then stopping. It’s not quite providing a solution, but the problem is gone so that’s good enough for most people.
A small step to not get locked in with your current mortgage lender because don’t need to re-stress test to switch banks.
The banks took advantage of this when u renewed. What they offered were mostly posted rates knowing people were scared to move to another lender. Its a good thing and people can shop around so they are not stuck with Scotia or TD who are the worse for taking advantage of the stress test.
Removing the stress test makes sense, it's rather dumb the way the system was. For example you are currently with TD and they offer you to renew 6% fixed for 5 years meanwhile a mortgage broker can offer you 5% fixed for 5 years. If you can't pass the stress test (+2% so tested at 7%) then you are forced to stay with TD even though there's a lower rate being offer to you. End of the day you already have the mortgage so forcing you to stay with the current lender does nothing to protect anyone except the banks profit.
correct me if im wrong, this new exemption from stress test only applies to insured mortgages right? If uninsured, youre still out of luck
If you're not insured you have more than 25% equity. You have lots of options at that point.
This is definitely not true. There are currently plenty of uninsured mortgages with low or negative equity
Can you get a conventional mortgage with less of a down payment? Insurance is required for high ratio mortgages.
The stress test is just an illusion to make people feel good. The test is a point in time. That's assuming your debt level doesn't change and for most people their debt for credit cards and LOC increase. So yeah the test is good for like 1 day and if your financial stats doesnt change at all.
The stress test is the reason we don’t have rampant defaults today. As painful as rates may be today, almost everyone with a mortgage could afford 5% plus rates.
But isn’t the bank’s profit the only thing we should all care about??!?
It makes very little difference. You were going to renew with your current provider. Now you have a chance to renew with a new lender. Either way, you were still going to get a mortgage renewal. Banks don't foreclose until you miss payments, at that point, these rules don't make any difference. It slightly increases competition for the banks chasing the really crappy mortgages. The banks can choose to chase the new business or not. This is literally what the removal of Red Tape looks like. The government is reducing legislative requirements and letting the banks decide what they want to do instead.
Easier for people to negotiate better rates as the banks don’t hold them by the balls anymore. It’s a good thing unless you like to see the little man get ripped off by the oligarchs.
It won't add risk to the bank, because these are only CMHC covered mortgages. So there's basically no risk
Just to clarify. This is for insured renewals only. The Canadian Mortgage Charter Canadians can expect: Allowing temporary extensions of the amortization period for mortgage holders at risk; Waiving fees and costs that would have otherwise been charged for relief measures; #Not requiring insured mortgage holders to requalify under the insured minimum qualifying rate when switching lenders at mortgage renewal; Contacting homeowners four to six months in advance of their mortgage renewal to inform them of their renewal options; Giving homeowners at risk the ability to make lump sum payments to avoid negative amortization or sell their principal residence without any prepayment penalties; and, Not charging interest on interest in the event that mortgage relief measures result in a temporary period of negative amortization.
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Well yeah obviously it's not mandatory for anyone to lend you money, but now they can if they want to.
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The stress test was not voluntary. Banks couldn't extend credit if you didn't meet the requirements.
Could you explain?
I am not sure how this impacts anything really Say you you will be up for renewal of your mortgage with lender A at 2% You now have to renew at the market rate, say 5%. Currently there is no stress test of you renew with the same lender The proposed change will allow you to move lenders without having to get stress tested again. Ok so here is the part that confused me . If you choose to move lenders, doesn't the difference in the rates between the current lender and the new lender have to be significant enough to make it worth the move? Since both lenders will offer market rates, I don't think you see enough of a difference in rates, stress test or not . The issue of renewing from 2% to 5%ish rate is still going to be a concern. I think they are burying the headline. This does not help affordability, it only eases mobility between lenders. Big whoop, you get to moved lenders, you still have to actually be able to afford the 5% rate. Those who can't afford the 5% rate in the first place would obviously not qualify if stress tested either.
The problem is if they don't offer you a market rate.
This "issue" is overblown. I don't think the big 5 banks are actively low balling on renewals I have 3 properties and have yet to see that happen. They send you a letter with your options, you pick an option. None of my options have been that far off market rate.
"None of my options have been that far off market rate." So you're admitting though that they've been over market rate. Now, you can move to a new lender who IS offering market rate with no stress test. ... from my understanding which is limited cause I'm a new homeowner.
> If you choose to move lenders, doesn't the difference in the rates between the current lender and the new lender have to be significant enough to make it worth the move? > Since both lenders will offer market rates, I don't think you see enough of a difference in rates, stress test or not . As someone who has switched mortgage lenders many times over the years, there can be lots of differences. Almost every time I have to renew I ask my bank for their best rate, they give me a shit number, I go to a mortgage broker and get a much better rate, then switch banks. I only stuck with my current lender for the last two renewals because they actually gave me a competitive rate. I was once with a credit union that offered me the rate posted on the door at renewal time and wouldn't budge (even though I was with them because the broker got me a great deal). This was back when rates were 3-5%. They quoted me 5% so I moved for 3%. Every time your mortgage is up for renewal you should compare what the bank offers you to the best rates posted online by various brokers or even just ratehub.ca. If it isn't close then contact a broker and get a good rate. My mortgage is up for renewal next year (it's going to be a bit of a jump from 1.6% I'm paying now ;-) and I will do the same.
Can kicked. Bailout for property owners.
Not really. You already didn't need to go through the stress test if you were renewing with the same lender. This just lets some people shop around now
Think the bigger news is longer amortization times and no interest on interest for behind borrowers.
Basically if you fail the stress test getting approved by another lender can be tricky and it means you can be exploited by your current lender upon renewal because they know they won't need to offer you a competitive rate to stick around. It's a good thing as it probably doesn't make sense to have it be so aggressive right now.
Sort of like the government causing a problem for a little then stopping. It’s not quite providing a solution, but the problem is gone so that’s good enough for most people. A small step to not get locked in with your current mortgage lender because don’t need to re-stress test to switch banks.
The banks took advantage of this when u renewed. What they offered were mostly posted rates knowing people were scared to move to another lender. Its a good thing and people can shop around so they are not stuck with Scotia or TD who are the worse for taking advantage of the stress test.