Stress Test Cancelled for Mortgage Renewal

Good news for homeowners! The Office of the Superintendent of Financial Institutions (OSFI) has decided to remove the stress test requirement for those renewing uninsured mortgages when switching lenders. This means that as long as you maintain your current loan amount and amortization schedule, you won't need to requalify under the stress test.

Previously, the stress test made it harder for borrowers to shop around for better rates at renewal, but now you'll have more competitive options. This change, driven by feedback from both industry experts and the public, will be formally announced on November 21, 2024.

Key Takeaway: If you're thinking about renewing your mortgage, you’ll soon have more freedom to explore competitive offers without the added burden of the stress test. Keep an eye out for this rule change in the coming months.

New Rule for Insured Mortgages

As of December 15, 2024, new rules will make it easier for more Canadians to access insured mortgages:

Price Cap Increase: The insured mortgage price cap is rising from $1 million to $1.5 million, allowing more people to qualify for mortgages with a lower down payment.

Expanded from 25 to 30 Years Amortization: First-time homebuyers and those purchasing newly built homes will now have access to 30-year amortizations, offering greater flexibility and lower monthly payments.

This is great news for Canadians looking to enter the housing market, especially first-time buyers who have struggled with affordability in recent years.

Key Takeaway: Eligibility: The new rules apply only to first-time homebuyers and insured mortgages. To qualify for an insured mortgage, buyers must make a down payment of less than 20%, and the loan-to-value (LTV) ratio must be 80% or more.

Mortgage Insurance: Borrowers are required to pay a mortgage default insurance fee, which is added to their monthly mortgage payments. This insurance is mandatory for those with less than a 20% down payment.

First-Time Homebuyer Definition: This includes individuals who haven’t purchased a home before, those who haven’t owned a home in the last four years, or those recently separated from a spouse or common-law partner.

These new rules will offer more Canadians the opportunity to enter the housing market while ensuring they have more flexibility and lower monthly payments through longer amortization periods.

Further Rate Cut Forecasting

Looking ahead, there are strong indications that we’ll see further interest rate cuts from the Bank of Canada. Experts are forecasting significant rate reductions, with expectations of 50 basis point cuts in December and January to help combat economic slowdown and rising unemployment. By mid-2025, the Bank of Canada’s key rate could be as low as 2.25%.

These rate cuts are poised to provide relief for borrowers, especially for those with variable-rate mortgages or those looking to refinance. Lower interest rates may also stimulate the housing market, offering better opportunities for buyers.

Key Takeaway: If you have a variable-rate mortgage or are considering buying or refinancing, it’s a good time to start planning for potential rate drops over the next several months.

Bank of Canada’s Rate Cuts: What’s Next?

The Bank of Canada has recently lowered its benchmark interest rate once again, and speculation suggests that even more significant cuts could be on the horizon. According to BMO’s chief economist Doug Porter, the central bank may be poised for more aggressive rate reductions in response to the US Federal Reserve's anticipated moves. While current rate cuts haven’t yet ignited a surge in homebuying, more substantial cuts might stimulate the market. Keep an eye on these developments, as they could impact your mortgage plans.

Managing Expectations on Interest Rate Drops

While recent rate cuts have been a welcome relief, industry expert Paul Meredith advises against expecting rates to plummet to the lows seen during the pandemic. Fixed rates have decreased due to falling government bond yields, but a return to rates below 2% is unlikely. Homeowners and buyers should stay informed but be prepared for a more gradual decline in rates.

Fixed Mortgage Rates: What to Anticipate

Mortgage holders have seen fixed rates decrease recently, driven by lower government bond yields and Bank of Canada rate cuts. However, don’t anticipate a dramatic drop to pandemic-level lows. The current bond market already reflects anticipated economic changes, meaning further reductions in fixed rates may be more modest.

The Case for Variable Rates: Risks and Rewards

Despite the Bank of Canada’s rate cuts, many borrowers remain wary of variable rate mortgages. Mortgage strategist Robert McLister highlights ongoing concerns such as qualification challenges and the fear of future rate increases. If you're considering a variable rate mortgage, it’s crucial to weigh the potential benefits against these risks and make an informed decision based on your financial situation and risk tolerance.

Preparing for Mortgage Renewals: What You Need to Know

With over $675 billion in mortgages set to renew in the next few years, many homeowners face the prospect of higher payments. While current rates are lower than the highs of last year, borrowers should still prepare for potential increases. BMO’s Doug Porter suggests that while the renewal environment will be challenging, the situation is manageable for most homeowners if they plan ahead.

How to Handle Potential Recessions

In light of potential economic downturns, Victor Tran from RATESDOTCA advises homeowners to prepare for financial uncertainties. Securing additional financing, consulting with lenders about payment options, and prepaying a portion of your mortgage can help mitigate the impact of unexpected income loss or financial strain.

Upcoming Events and Tips

• Rate Watch: Stay updated on Bank of Canada announcements for potential changes.
• Market Insights: Watch for fluctuations in bond yields that could impact fixed mortgage rates.
• Renewal Prep: Begin exploring your options for mortgage renewal ahead of time.

As always, if you have any questions or need personalized advice, feel free to reach out to our team. We’re here to help you navigate these changes and make the most of your mortgage strategy.