Revisiting the "Mortgage Stress Test"

The Toronto Star has a great article today suggesting that it may be time for Ottawa to revisit the year-old Mortgage Stress Test. The Mortgage Professionals of Canada group released their own report, indicating how the current structure of the stress-test does not accurately reflect Canadians buying-power, nor does it take into account the decreasing primary mortgage amount, as payments occur over the life of the mortgage.

We have all seen the tremendous impact these rules have had - not only on first-time Buyers, but on many current homeowners looking for end of term renewals.

Read the full article here: Revisiting Mortgage Stress Test rules.

Choosing the right Mortgage for you


The four main types of mortgages offered by lenders in Canada are closed, open, fixed and variable rate. Many lenders also offer products that combine elements of various mortgage types (i.e. additional payments, blended rates, rate discounts, cash back, etc. See your mortgage broker or lender for details).

A "CLOSED MORTGAGE" keeps payments unchanged for the duration of the loan period. It provides payment stability but there is a penalty for early termination. Terms can be anywhere from six months to twenty years or more, with a five year term being the most common. Interest rates generally rise with the length of the mortgage term.

An "OPEN MORTGAGE" allows the flexibility of prepayment.

A "VARIABLE RATE MORTGAGE" offers the advantage of lower rates if mortgage rates decline. On the other hand, it exposes the borrower to the risk of increased monthly payments if interest rates rise.

A "FIXED RATE MORTGAGE" keeps the mortgage rate the same throughout the term of the mortgage even if rates do go up. If rates do go down, a fixed rate mortgage may prove to be more expensive than a variable rate mortgage.

A "SHORT TERM MORTGAGE" is usually for two years or less. A "LONG TERM MORTGAGE" is generally for three years or more. Short term mortgages are appropriate when someone believes interest rates will drop by renewal time. Long term mortgages are suitable when current rates are reasonable and borrowers want the security of budgeting for the future. This may be particularly important for first time buyers. The key to choosing between short and long term mortgages is to be comfortable with the mortgage payments.

A "CONVENTIONAL MORTGAGE"i s a loan for no more than 80% of the appraised value or purchase price of the property whichever is less. The remaining amount comes from the borrowers own resources and is known as the down payment.

A "HIGH RATIO MORTGAGE" is used when loans exceed conventional mortgage lending guidelines. These mortgages are granted under the National Housing Act (NHA) and must, by law, be insured against default through Canada Mortgage And Housing Corporation (CMHC) or Genworth Financial Canada. The borrower will pay an insurance premium based on their qualifications. Typically, a down payment of at least 5% is required to qualify for this type of mortgage.