Could the Federal Government be making changes to the mortgage stress test?

On Friday, Prime Minister Justin Trudeau released his Mandate Letter to the Finance Minister. One of his state priorities is that the minister must “review and consider recommendations from financial agencies related to making the borrower stress test more dynamic.”

While it doesn’t sound like there is an intention to scrap the stress test, or even make it less of a burden, there is noise that they want it to be more reactive to the market. Is this going far enough though?

Mortgage Stress Test for Buyers

We all know there are significant issues around the current mortgage stress test rules. They were brought up again and again during the election.

First, the rate used to qualify is arbitrarily set by the big banks – it’s the average of their posted rates. Not even the big banks lend at these rates. Posted rates are only used in the calculation of their mortgage penalties. The higher their posted rate, them more borrowers will pay in penalties if they break their mortgage before the end of the term.

On top of that, we’ve seen actual lending rates drop from almost 4% in January, 2019 to 2.39% in early fall. The posted rates, and the qualifying rate, dropped from 5.34% to 5.19% in the same period. It makes no sense.

Mortgage Stress Test for Renewals

The good news, for those who have insured mortgages (less than 20% down payment when they bought), your mortgage may be grandfathered. You don’t have to re-qualify at renewal with your existing lender, but if they’re not offering you the best rate, you still have options.

Many lenders will still grandfather mortgages that originated prior to October 17, 2016. This will allow homeowners to qualify for a transfer of their mortgage to a new lender under the old qualifying rules. So, if you have a five-year term, and your mortgage matures before October 17, 2021, you may be in luck.

There are no guarantees as to what lenders will/will not allow down the road, but today, there are options.

What changes to expect in 2020

“Financial agencies’ in Trudeau’s quote above may mean that Morneau will be in consultation with the big six banks. It may also mean agencies like Mortgage Professionals Canada. MPC have been lobbying for consumers and changes to the stress test. They are also advocating for 30 year amortizations to be brought back.

Bill Morneau also stated yesterday that he is ‘open’ to considering changes to the federal fiscal stabilization program (ie. transfer payments).

Changes to the stress test would go a long way to stabilizing housing market in our province. Financial relief for Albertans would help both the economy and the housing market. Fingers crossed for both!