February 20, 2020 | Buying

Attention Toronto homebuyers! Just as the Toronto housing market began gaining its momentum due to the lack of supply in new listings which has caused some serious competition for homebuyers, the government had an important announcement to make which might heat things up a little more.

The federal government has declared its adjustment of the stress-test rate for insured mortgages. This breaking news is set to take effect starting April 6, 2020, and some experts predict this should make it simpler for some buyers to purchase their first home. While this proves to be exciting news, some experts fear it could heat the market up a little too much.

Finance Minister Bill Morneau revealed the change on Tuesday by stating that the new stress-test rules promise to be more responsive to median interest rate changes while continuing to make sure people only obtain affordable mortgages. Canadian household debt has spiked dramatically, fueled partially due to mortgages. The new stress-test is designed to protect Canadians from defaulting on their mortgage payments should interest rates rise in the future.

The new stress-test declares that borrowers with insured loans will have to qualify at 2 per cent above the rate their bank is offering or 2 per cent above a new weekly median 5-year insured mortgage rate that will be based on mortgage insurance applications. The Bank of Canada’s 5-year benchmark posted mortgage rate is currently 5.19 per cent, while Royal Bank is advertising a rate on their website for a 5-year fixed-rate mortgage at 3.09 per cent.

The overall picture

This new stress-test change should ease up the pressure slightly for first-time homebuyers looking to get into the market, or owners refinancing their current existing mortgages. The change will not have a dramatic impact on the housing market until, as expected, the OSFI adopts the new benchmark rate for uninsured mortgages on the 6th of April, 2020. This could call for a hotter spring market than initially anticipated at the beginning of 2020, and could likely spike home prices higher than we’ve already seen due to the lack of supply in new GTA listings.

Interested to know what these changes might mean for you? Contact us today and we can help you better understand your position in Toronto’s current real estate market.