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18 Dec

Mortgage Stress Test – Not the Bad Guy

General

Publié par: Kevin Carlson

Ever since the federal government regulator, The Office of the Superintendent of Financial Institutions (or OSFI) brought in the Mortgage Stress Test, there has plenty of blame heaped upon it for slowing home sales and new home starts. Even though it has slightly reduced how much of a mortgage I can approve my clients for, the initial logic is sound. The stress test attempts to protect Canadians from taking on more mortgage debt than they will be able to afford when their mortgage renews down the road.

What it doesn’t do is curb additional debt and other financial factors after the mortgage starts. Many clients do not consider long term changes like, child care expenses, new vehicle loans, ongoing credit card and line of credit debt payments.

I work with many first and second time home buyers with wide ranging financial details. The stress test is a limiting factor, but in no way is it the largest culprit in preventing my clients from getting mortgage they are requesting. Credit cards, lines of credit and vehicle loans have a much larger impact on reducing the mortgage borrowing ability for most of my clients.

Here are some real-world numbers on 2 hypothetical first time home buyer scenarios that help to illustrate what consumer debts can have on a mortgage application.

1. Individual or couple – scenario 1
Buyer(s) with household gross income of $80,000.00 that have $17,000.00 as down payment.
There is a student loan with a payment of $200 per month and a vehicle loan of $300.00 biweekly.
This application would be approved for the purchase of a $250,000.00 detached home.
An additional monthly credit or loan payment of only $300.00 per month will prevent mortgage approval for this application.

2. Individual or couple – scenario 2
Buyer(s) with household gross income of $125,000.00 that have $33,000.00 as down payment.
There is a student loan with a payment of $200 per month and a vehicle loan of $300.00 biweekly.
This application would be approved for the purchase of a $500,000.00 detached home.
An additional monthly credit or loan payment of only $500.00 per month will prevent mortgage approval for this application.

Credit cards, lines of credit and vehicle loans are exceedingly easy to obtain but could stand in your way when you are looking to buy your first or next home. Please consider carefully before financing anything. If you are curious about what your debt numbers look like you can try using my Iphone or Android app to find out.

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