Most Canadian mortgage brokers are familiar with the “stress test:” to qualify for a mortgage loan through a bank, prospective homebuyers must pass a test designed to prove that they’ll be able to maintain their payments even as interest rates fluctuate. Currently, the rate for the stress test is the greater of either the applicant’s contract rate, or the Bank of Canada benchmarked five-year posted mortgage rate, determined by the rates posted by the six largest banks. As of April 2020, however, the stress test will change.
Starting April 6, borrowers will be subjected to a new minimum qualifying stress test rate. It will be the greater of either their contracted mortgage interest rate or the weekly median fixed insured mortgage rate from mortgage insurance applications, plus a buffer of two additional percentage points. The new benchmark rate will be posted by the central bank each Wednesday and will officially go into effect the following Monday.
The change is being introduced to ensure that borrowers only apply for mortgages they can truly afford, both now and into the future. Yet, it could affect new retirees, as current income is assessed as part of the stress test. First-time homebuyers may also see decreased purchasing potential – perhaps by as much as 20%. Yet, it’s worth noting that the new stress test rates could lead to an even busier spring buying season across the housing market, as these new parameters may help to resolve the issue of potential homebuyers being pushed from the market by the test for uninsured loans. Housing activity has already been on the rise, and spring 2020 was predicted to be a hot season before the change was even announced.
What the New Mortgage Stress Test Means for Brokers
Clearly, everyone across the real estate industry, from brokers to realtors, will need to brace themselves for a potentially unprecedented flurry of activity this spring. As we can see, however, mortgages continue to be increasingly complex. The application process can create stress and hassle on both sides, especially with a change as major as the update to the stress test. There’s bound to be some confusion from prospective homebuyers, and brokers should be poised to keep the lines of communication open so they can ensure timely responses.
BluMortgage is a cloud-based mortgage CRM system which allows brokers to minimize the complexity of the mortgage application process by automating key steps and communications with clients. It simplifies the underwriting process with a 21-action process to streamline repeated yet essential actions needed to complete the mortgage process. Clients are guided through historically complex and confusing steps like the stress test, thus increasing their overall satisfaction and attention to any outstanding action items that need to be completed. Email and SMS automations are also streamlined to ensure both the broker and client remain in-the-loop at all times.
Plus, it saves brokers time and hassle, allowing them to take on additional clients and focus on the initiatives that truly drive their business. With a particularly busy season on the horizon, these features will help to propel brokers through a competitive market and navigate changing conditions with agility and ease.