The Mortgage Stress Test Is Changing First-Time Home Buyer Strategies
7th Jun 2017
First-time home buyer strategies in Winnipeg need to change because of the mortgage stress test and rising home prices.
In the fall of 2016, Ottawa implemented the mortgage stress test to ensure home buyers can meet mortgage payment obligations if interest rates rise. If you require an insured mortgage, you must qualify for payments based on the Bank of Canada qualifying rate for a five-year fixed-rate mortgage. The rate currently stands at 4.64%.
There can be a considerable gap between what you must qualify for and what you actually pay. The Bank of Canada rate is currently 4.64% and a competitive mortgage rate is approximately 2.28%.
Potential home buyers need a strategy to work with the new guidelines imposed by the government. Vertuity Mortgage works with clients to understand the mortgage stress test. “As a mortgage broker, we’re able to help people understand the mortgage stress test and how it affects the purchase price of a new home,” said Brent Parnell, owner of Vertuity Mortgage.
Determine What You Can Afford Ahead of Time
Parnell said potential home buyers need to determine how much home they can afford. He said the average home price is around $300,000 in Winnipeg. First-time home buyer strategies need to be different when home prices climb.
“If you put ten percent down with a good interest rate your payment is going to be around $1,500 a month,” said Parnell. “You need to look at where you’re buying and how much home you’re buying for that monthly payment.” Parnell said some of the contributors to the price of a home are the location, when the home was built, the size of the home and the size of the lot.
“We prequalify our clients for a mortgage and help set their expectations about the home they can buy. The mortgage stress test puts pressure on the purchase price of a home and potential buyers need to understand it. First-time home buyer strategies need to change,” he said.
Parnell said first-time home buyers need to spend more time early in the home buying process to learn what affects the price of a home. First-time home buyers need to find a balance between the home they want and how much they can afford.
Some of the options are:
- Find an affordable neighborhood that meets your needs.
- Decide how many bedrooms and bathrooms you really need.
- Be realistic about the age of home you want to buy. How new does your new home need to be?
- How much yard do you need? Can you get away with a smaller lot?
- How much is your down payment? Can you save more and come to the table with a larger down payment?
- How do you earn more money to afford more home?
Vertuity Mortgage will walk you through the home buying process and help you understand all the variables affecting home prices. Vertuity Mortgage will work with you to understand how much home you can afford.