MARGARET CRAIG
  • Home
  • About
  • Listings
  • Testimonials
  • Resources
    • Buyer Advice
    • Seller Advice
    • Living In Halifax, NS
    • Resources
    • Blog
  • Contact Me

VARIABLE INTEREST RATES AND THE STRESS TEST

5/19/2022

0 Comments

 

VARIABLE INTEREST RATES AND THE STRESS TEST BY JAMES MCKEOWn

Recently there have been a lot of questions about how variable-rate mortgages are set to rise since they are linked to the prime rate. But what we should also look at is how fixed-rate mortgages have been rising rapidly for the past several months. Recently James McKewon, a local Mortgage Professional, posted a blog about just this subject. 

If you're curious how the changes around mortgages will affect you, read more below. ​
Picture
Clients often have questions after hearing in the media how variable rate mortgages are set to rise (linked to the prime rate), but what they don’t realize is how fixed rates mortgage have been on a rocket to the moon for the past several months. 

Fixed rate mortgages are impacted by the bond market and not the prime rate, meaning they are free to rise and fall at anytime, not just set intervals. But how do fixed rates impact affordability, and what is the stress test?
Last updated in June 2021, the stress test requires that mortgage applications be approved at a rate of 2% above the contract rate, or 5.25%, whichever is higher. With some fixed rates exceeding 4%, the qualifying rate is pushed above the 5.25% benchmark, while the variable rate product from the same lender is often not. While almost half the cost today, variable rates are set to increase, and with record inflation, and other unknowns there are no guarantees when those increases will end.

A variable rate could be a very smart move, if you are in a position to afford increasing payments, as locking in down the road could still mean a higher rate than today. Variable rates are less advantageous to first time home buyers, retirees looking to downsize, or those looking to refinance. In today’s policy environment however, they may have no other option but to take the variable and its lower qualifying rate, in order to secure the extra money to purchase or get approved.

But why don’t we have 30 year amortizations for first time home buyers, or the ability to qualify at the rate you would be paying in the case of a fixed rate term? These changes could bring immediate benefit to buyers looking for a home and level the playing field with those who are purchasing to invest, but it would also push prices even higher as Canada is estimated to need up to 1.2 million additional housing units with plans to build only a fraction of that number. It’s simply not possible to increase ownership and limit dramatic price increases when we have a shortage of homes to begin with. Rising interest rates and the stress test may well be what ultimately limits the rise in housing prices to a more manageable number, but that’s cold comfort to those being pushed out of the market and left in a rental market with its own challenges. A policy designed to promote stability however should not be encouraging variable rate mortgages, and as long as that’s the case, the stress test simply makes no sense. 

Read the original article here. ​
0 Comments



Leave a Reply.

    Picture

    Margaret Craig

    Real Estate Advisor based in Halifax, Nova Scotia. I help people buy and sell homes with Engel & Völkers. 

    Archives

    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    July 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020

    Categories

    All
    Advice For Buyers
    Advice For Sellers
    Living In Halifax
    Nova Scotia

    RSS Feed

Picture
Interested in buying or selling real estate in Halifax? I would love to hear from you.
Get In Touch
Site by christine santimaw design
  • Home
  • About
  • Listings
  • Testimonials
  • Resources
    • Buyer Advice
    • Seller Advice
    • Living In Halifax, NS
    • Resources
    • Blog
  • Contact Me