Mortgage Stress Test
Tags: Coldwell Banker, Mortgage, Housing, Real Estate, Rates
Once again, we are facing a “stress test” when qualifying for a mortgage. The OFSI (Federal oversight of Charter Banks) is considering increasing the stress test to 5.25% for conventional mortgages (more than 20% equity) effective June 1. This will reset the rate a 2019 rate, making it more difficult to qualify for the higher priced housing we are faced with.
An increase from 4.79% to 5.25% reduces the maximum qualifying mortgage amount by about 5%...both for purchases and refinances. To avoid the new stress test rate an active mortgage application needs to be in place prior to the change. Rate holds, pre-qualification and pre-approval application limits will use the stress test rate applicable when the application goes live.
Of interest 5 year fixed rates are currently in the 2-2.5% range and variable rates in the 1.4-1.9% range.
OFSI started this initiative last Jan but shelved it due to COVID. Rapid price increases have made this a more pressing political topic. While the announcement affects the uninsured mortgages, there is a prediction that CMHC, who handles the insured mortgages, will likely also implement a higher stress test. Credit unions and some other types of lenders do not fall under OFSI rules but roughly follow them on their own accord.
This may slow our market for a bit, but until either the high demand diminishes, or the inventory rises substantially, it is likely only going to have a small impact. Buyer's tend to adjust their criteria rather than pause their search when what they wanted is no longer achievable. In the last several weeks REALTORS and clients have started to experience buyer exhaustion from chasing properties and being in competition with multiple other offers.
Bottom line…if you are considering a refinance or a purchase, acting before June 1st is a way around the upcoming new qualifying rules.
Contact your favorite Coldwell Banker agent – we can help!
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