The Canadian government has announced new measures to address the country’s housing crisis, including $15bn in funding for 10-year loans for new rental builds and $1bn for affordable housing construction. The rental funding is expected to spur the construction of 30,000 new homes across Canada, while the affordable housing funding will focus on non-profit, co-op and public housing. The government also proposed new mortgage rules for lenders to help at-risk homeowners, waived fees and costs for relief measures, and plans to discourage short-term rentals like Airbnb’s by preventing owners from making tax deductions on these properties.

The Information About Feds Declare New Mortgage Charter, $15 Billion In Funding For Housing Construction

In the recent financial update, Minister of Finance Chrystia Freeland shared several new plans to address housing issues in Canada. The government will be providing billions of dollars to fund the construction of new affordable housing as many markets in the country are experiencing shortages.

One of the measures announced is the allocation of $15 billion for 10-year loans to support the construction of rental buildings. This funding is expected to lead to the creation of 30,000 new homes across Canada. The loans will be directed towards rental projects with at least five units. Additionally, $1 billion will be allocated to the construction of affordable housing, focusing on non-profit, co-op, and public housing. The funding will be provided directly, rather than in the form of loans, over a three-year period.

The federal government plans to make further changes to the existing Affordable Housing Fund and the Apartment Construction Loan Program in early 2024 to enhance accessibility and approval processes.

A New Mortgage Rules

In addition, the government is proposing new mortgage rules to assist homeowners facing increased interest rates. The Canadian Mortgage Charter outlines new regulations for financial institutions. Under the proposed rules, lenders will be required to contact homeowners four to six months before their mortgage renewal to discuss options. Temporary extensions of the mortgage amortization period will be allowed for homeowners in need. Fees for relief measures will be waived, and homeowners will have the ability to make lump sum payments or sell their residences without penalties. Interest charges on interest during temporary negative amortization will also be prohibited.

For borrowers seeking to switch lenders at the time of renewal, the stress test requirement will be eliminated for those with insured mortgages.

Short-Term Rentals – Airbnb

To address the issue of short-term rentals, such as Airbnbs, the government aims to discourage their operation by disallowing tax deductions for property taxes, repairs, and interest costs in provinces and municipalities where short-term rentals are banned. Funding of $50 million over three years will be provided to municipalities for the enforcement of their short-term rental regulations.

These measures are intended to support the availability of long-term rental properties and affordable housing options in the Canadian housing market.

Wrapping Up

In the fall fiscal update, Minister of Finance Chrystia Freeland announced several housing-related measures aimed at affordable housing construction and addressing the shortage of housing across Canada. The government will allocate billions of dollars towards new housing construction. This includes $15 billion for 10-year loans for new rental builds and $1 billion for the construction of affordable housing. The funding for rental construction is expected to support the creation of 30,000 new homes, while the funding for affordable housing will focus on non-profit, co-op, and public housing.

The government also plans to introduce reforms to make these programs more accessible and to provide faster approvals. Additionally, the government is proposing a new mortgage charter that sets out regulations for lenders when dealing with homeowners who are at risk, including contacting homeowners before mortgage renewal and offering temporary mortgage extensions. Furthermore, the government aims to discourage short-term rentals like Airbnbs by preventing owners from making tax deductions on properties in provinces and municipalities where short-term rentals are prohibited. The fiscal update also includes funding for municipalities to enforce their own short-term rental regulations.

Mortgage providers in Canada have been reducing fixed mortgage rates in response to a sharp decline in bond yields. Over a dozen national mortgage providers have dropped their rates by 10 to 30 basis points, with most rate changes concentrated in the 3- to 5-year terms. However, the rate drops were not expected to match the decline seen in bond yields due largely to risk premiums.

Meanwhile, the House of Commons Standing Committee on Finance has called on the Minister of Finance to reject RBC’s proposed acquisition of HSBC Canada, citing concerns over competition and potential fee increases for Canadians.

The Details of Breaking Mortgage News: Lenders Slash Fixed Rates by Up to 30 Basis Points

Mortgage lenders in Canada have been reducing their fixed mortgage rates in response to a significant decrease in bond yields. The 5-year Government of Canada bond yield, which is a key factor in determining mortgage rates, has dropped by nearly 30 basis points and is currently around 3.80%.

This represents a decline of over 60 basis points from its peak of 4.42% in early October. More than 12 major mortgage providers in the country have already lowered their rates by 10 to 30 basis points, particularly in the 3- to 5-year terms. This is based on data compiled by MortgageLogic.news.

Experts, like Ryan Sims from TMG The Mortgage Group, have noted that while mortgage rates are decreasing, they are not dropping as much as bond yields. This is because lenders and mortgage providers are factoring in risk premiums given the possibility of an economic downturn in the near future. That means for the possibility of an impending economic downturn, lenders and mortgage providers will probably continue to include risk premiums in their rates.

About The Finance Committee Urges The Government to Prevent The RBC-HSBC Deal

The Finance Committee of the House of Commons has also recommended that the Minister of Finance reject RBC’s proposed acquisition of HSBC Canada. They argue that there is already limited competition in the Canadian banking sector and removing HSBC as a competitor could lead to higher banking fees for consumers.

HSBC is a significant player in Canada’s mortgage market, often offering competitive rates for various terms. The Competition Bureau approved the deal but acknowledged that it would reduce competition between Canada’s largest and seventh-largest banks.

RBC’s CEO, Dave McKay, sees the acquisition as a unique opportunity that would strengthen the bank’s offerings for commercial clients, newcomers to Canada, and affluent customers in need of global banking and wealth management services.

Wrapping Up

Mortgage providers in Canada have been reducing fixed mortgage rates in response to a significant decrease in bond yields. The 5-year Government of Canada bond yield, which typically affects fixed mortgage rates, has dropped by nearly 30 basis points and is currently at around 3.80%. This represents a decrease of over 60 bps from its high of 4.42% in October. Over a dozen national mortgage providers have lowered their rates by 10 to 30 bps, with most changes occurring in the 3- to 5-year terms. However, experts suggest that the rate cuts have not fully matched the decline in bond yields due to risk premiums.

Additionally, the House of Commons Standing Committee on Finance has recommended that the Minister of Finance reject RBC’s proposed acquisition of HSBC Canada. They argue that the deal would reduce competition in an already uncompetitive financial sector and potentially lead to higher fees for consumers. HSBC, as the 7th largest bank, is a key player and competitor in Canada’s mortgage market.

Today, I am going to talk about what is the mortgage stress test in Canada.

What is the Mortgage Stress Test in Canada? The federal government has put in place a mortgage stress test in Canada in an effort to help Canadians manage debt loads.

The result is that lending by federally regulated financial institutions must require a borrower to meet a certain threshold when it comes to how they are able to pay back their mortgage in the event of any kind of increased interest rates, increased loan amount, or any change in economic circumstance.

A borrower’s capacity to afford a mortgage in the future is calculated by looking at how much they earn in their current job, any outside income, the climate they live in, and the size of their down payment.

The federal government provides some guidelines when it comes to the calculation, but lenders also have their own mortgage stress tests that they need to follow.

Canada’s federal government is mandating, after consultation with the insurance and banking sectors, a mortgage stress test to help reduce the risk of a housing bubble and irresponsible borrowing.

What is a Mortgage Stress Test?

What is the Mortgage Stress Test in Canada? First, let’s start with understanding what a mortgage stress test is. A mortgage stress test is a financial requirement that banks require potential home buyers to pass before they are able to complete the purchase of a home.

It is done in order to verify that the buyer can afford their mortgage payments even when interest rates are higher. The stress test is often used by the lender to make sure that the buyer’s monthly housing costs will not exceed thirty-seven percent of the monthly pre-tax household income.

To pass the mortgage stress test in Canada, your bank will ask you for “proof of income”. This might be a pay stub, tax returns, investment statements, or social assistance program benefits. It’s important to be honest about your income when you’re applying for a mortgage or renewing your current mortgage because this is when they do a calculation to determine what you can afford.

In Canada, banks have been required to perform a mortgage stress test on clients since January 1, 2018. More specifically, this is a “stress test” in which a bank needs to determine a person’s ability to pay back a loan, by qualifying the mortgage loan. To do this, they will ask for a person’s “proof of income” – the most recent tax return, your recent pay stubs.

Why Was the Mortgage Stress Test Introduced?

What is the Mortgage Stress Test in Canada? The introduction of the mortgage stress test has been introduced to ensure the cost of your mortgage is more affordable.

Canada’s federal government introduced the stress test in an effort to protect buyers from taking on more debt than they can realistically afford, as well as to ensure that the Canadian residential real estate market stays on a sound, sustainable footing.

The mortgage stress is also to ensure that home buyers are not getting into mortgages that they will not be able to afford over the long term. The mortgage stress test ensures that home buyers can afford their mortgage payments, even if rates rise or their income drops.

The lender will review the borrower’s financial situation for the last two years, including employment income and residential history, and apply a maximum qualifying rate.

How Does a Stress Test Work?

What is the Mortgage Stress Test in Canada? A stress test on a mortgage is a complicated set of financial calculations. It is designed to ensure that the mortgage will be repaid in full on or before the maturity date if the average of the best five years of the borrower’s annual income decreases suddenly – for example, if the borrower lost their job.

The mortgage stress test is a recent addition to the mortgage qualification criteria. The stress test was introduced to Canada by the Office of the Superintendent of Financial Institutions (OSFI) in late 2017, early 2018. At the time, the mortgage stress test required that any new mortgages meet at least the minimum federal benchmark rate.

The current version of the mortgage stress test, which came into effect on June 1, 2021, benchmark rate + 2% or 5.25%. whichever is higher. For more information, you may check out the article here.

How Does a Stress Test Affect You?

What is the Mortgage Stress Test in Canada? It is important to know how the stress test can affect you. It may have an effect on your down payment requirement, the type of mortgage you are able to get, and the type of home you can afford.

For a number of years, the real estate market was going up and buyers could get mortgages with less and less skin in the game. In 2017 that all changed. A mortgage stress test was introduced that has choked the available mortgage dollar, sending it to a trickle. Mortgage lenders have been able to withstand the brunt of the stress test.

In areas where real estate prices have been rising, the stress test has made it tougher for buyers to qualify for a mortgage. Without a qualifying mortgage, the home buying process is stalled until a buyer can come up with a down-payment.

Conclusion about the Mortgage Stress Test in Canada

What is the Mortgage Stress Test in Canada? The mortgage stress test is a measure that Canada introduced to prevent home buyers with a high borrowing capacity from over-extending themselves.

The mortgage stress test is a new process that lenders will use to determine what can be borrowed for a mortgage. The stress test limits the size of the loan that the borrower qualifies for by comparing the home-buying costs (mortgage, insurance and taxes) with the borrower’s ability to pay (adjusted gross income, other debts and “discretionary” income). The stress test was implemented as a safeguard against housing market bubbles and inflation.

The stress test is a type of mortgage approval and it was designed to assess the ability of the borrower to meet mortgage commitments under an economic stress scenario of increased unemployment or decreased incomes.

Are you ready to buy a house? Head over to How To Qualify For A Mortgage In BC to check out if you are ready to get a pre-approved mortgage.