Mortgage rules stress need for stress-testing

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A survey suggesting a significant rate hike would challenge half of Canadian homeowners may be a wake-up call for brokers encouraging clients to max out  preapprovals.

"Canadians need to take control of their financial situations," said Nicholas Cheung with the the Canadian Institute of Chartered Accountants,sponsor of the poll. "They need to make decisions in their own best interests, and by taking this control they will be stronger financially."

Of the 1,000 Canadians answering the Harris Decima phone survey, some 48 per cent admitted they would be hard-pressed to make mortgage payments and cover other debt if rates adjust "significantly."

More specifically, nearly 30 per cent said they could handle a two-percentage-point hike.

The survey comes as brokers expect more first-time buyers in Vancouver and Toronto will need to max-out their preapprovals in order to secure even entry-level condos.

The challenge stems from this month's introduction of tighter mortgage rule changes, in particular the lowered amortization cap.

Brokers are, in fact, already cautioning clients against making that kind of move by stress-testing mortgages at higher interest rates.

“We’re stress-testing clients at five per cent interest rates and showing them why maxing out their pre-approval in order to win a house in a bidding war could cost them their home in five years,” said Deon Yu, a Toronto mortgage planner with Mortgage Architects.  “It’s not something they may want to hear because they really love the house, and it may not be in our own immediate interest, but they’ll appreciate that a mortgage broker was looking out for them and that leads to future business and referrals.”

 

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