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How Will Canada’s New Stress Test Affect Your Mortgage Renewal?

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Canada’s new mortgage rules have already had a big impact on real estate prices and sales volume. As of the 1st of January 2018, all Canadian buyers borrowing from a federally regulated lender are subject to the OSFI Mortgage Stress Test, including insured borrowers with down payments of 20% or more.

For this reason, renewing your mortgage in 2018 might seem a little more complicated than usual. This post will guide you through the process of getting a mortgage renewal at the best possible interest rate, under the new Federal regulations.

A summary of the mortgage renewal rules in Canada

On October 2017, the Canadian Government implemented a new stress test that requires all borrowers to qualify at the Bank of Canada’s posted 5-year mortgage rate, which currently stands at 5.14%, or 2% points higher than the buyer’s contracted rate.

The stress test applies to mortgage renewals as well as new mortgages, unless the borrower renews with their existing lenders.

But don’t let this dissuade you from shopping around for a better interest rate. According to James Laird, president at Toronto-based CanWise Financial, 97% of borrowers who qualified for a mortgage 5 years ago would qualify again today, even with the new stress test applied.

If you fail the stress test however, you will be stuck renewing with your current financial institution, and may be forced to accept an uncompetitive rate.

How to shop around for a mortgage

Once you have an interest rate quote from your own bank, compare the rate and terms with various lenders. Rather than waiting for the renewal slip, start as soon as possible to ensure you qualify. The smartest timeframe to give yourself is 120 days before your term is up, to avoid incurring a prepayment penalty.

You could also consider hiring a mortgage broker, who will shop around at a variety of different lending institutions, to find you the most favourable terms. Since mortgage brokers have a large network of lenders, they can steer you towards options you wouldn’t have known about otherwise. A mortgage broker is also equipped to spot onerous terms in mortgage contracts.

Consider alternatives to your current mortgage terms

Besides your interest rate, you will want to consider whether your current life and employment conditions still complement the terms you selected when you started your mortgage. Can you afford to increase your mortgage payments? Is it best if you switch from a monthly to a bi-weekly payment? Re-discuss your options with your accountant or with a mortgage broker before signing on the dotted line.

Most importantly, remember that you aren’t necessarily locked in with your current lender. Shopping around for a better interest rate could save you a significant amount of money over your next mortgage term.


This post,  How Will Canada’s New Stress Test Affect Your Mortgage Renewal? appeared first on Shupilov Real Estate

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