20 Oct

THE FEDS’ DISTRESSING “STRESS TEST”

General

Posted by: Tracy Price

How much more stress can we take as Canadians?

Why hit homeowners and hope-to-be homeowners without adequate time to plan and adjust?

Prior to October 17th, in order to qualify for a typical 5-year fixed rate mortgage amortized over 25 years, as long as you had a 5% down-payment, you could qualify at the rate you’d pay. Right now, that’s 2.44%-2.49%. Very low, yes. Now suddenly you are forced to qualify as though you have payments at 4.64%! This is a fictitious rate set by the Federal Government that no one pays.

 

For example, under the old rules, a renter paying $1200 per month, could get into a home for $1226 per month plus $200 in property taxes, even with a small car payment they could have qualified for a home. As of this week, the same person will have to qualify for a fictitious payment of $1546 per month, a payment he or she will not make in the 5-year term of the mortgage. In fact, the homeowner won’t even have to make that payment at the end of the 5 years either, because he will have paid down $42,000 of principal off his mortgage!

Think about it for a moment. Renters are trying to get into the market as first-time homebuyers. Most of them are young Canadians with children and huge debts from student loans, credit cards and cars (at insane interest rates of 18%+!) Why are they allowed to accumulate all of this debt? Why are they now excluded from their Canadian right to own property in their native land? Why haven’t the Feds addressed consumer debt, which is the real threat to Canadians’ financial health?

It’s a fact. Housing prices in Vancouver and Toronto are insane. But so are rents. And, this phenom is seeping into every area of civilized cities and towns across Canada. Something has to change so that Canadians can afford to have shelter.

We don’t live in Toronto or Vancouver. We live in small town Ontario where people can still buy a starter home in our small community for $280,000. On the flip side, as many people from larger city centres plan for retirement, they have been cashing out of their higher priced homes to move here where it’s more affordable. All of this will change now with the Federal Government’s new mortgage Stress Test.

The Federal Government says it’s trying to avoid a bubble and protect Canadians from mortgage defaults. Defaults in Canada has never been much more than less than ¼ of one per cent. Compare that with US defaults of 10%+ as a result of the subprime days.

It leaves us wondering… What The FrootLoops is their agenda? We have an inkling and it rhymes with “thanks”… more on that to come…

There is always a silver lining and we are here for you to help navigate and plan. We’d love to hear from you.