Condos for sale pickering . How to arrange to avoid risk? Wang Hongyu, an expert on housing loans, believes that the policy has a greater impact on buyers who have bought uncompleted flats but have not yet delivered their property rights and have not made financial arrangements.
Buyers in this situation can negotiate with banks to apply for “uncompleted mortgage loans” (builder capped rate mortgage), before the end of the year to control future uncertainties.
According to federal regulations, from January 1, 2018, mortgage applications that do not need to buy loan default insurance (mortgage insurance) will also be subject to mandatory stress tests to ensure that borrowers can bear the risk of raising interest rates. Wang Hongyu explained that another name for the stress test is the “minimum approval rate” (minimum qualifying rate). In the future, the bank will use the benchmark interest rate of the five-year loan announced by the Central Bank of Canada (five-year benchmark rate, is currently about 4.89%), or the actual lending rate approved by the bank (contract mortgage rate) plus 2%, the higher value will be taken as the “minimum approval rate” to calculate and determine the final approved loan amount.
The bank decides how much to lend according to the borrower’s repayment ability. It goes without saying that the higher the interest rate used to calculate the loan amount, the heavier the future interest burden on the borrower, the less the total loan amount the borrower can afford with the same income. Wang Hongyu said that according to his own calculation, in the case of 25-year amortization of the loan, for every 1 percentage point increase in the interest rate used to calculate the loan amount, the total amount of the loan will be reduced by 10% with the same income. After January 1 next year, the government will impose a higher “minimum approval rate” on the amount of loans approved by banks, which is bound to result in fewer loans that buyers can borrow from banks with the same repayment ability.
The next question is, all buyers will face stress tests after January 1 next year. Why will uncompleted property buyers be more affected and impacted than other buyers? In short, this is because when uncompleted property buyers undergo stress tests, they use a higher minimum approval rate than the average existing home buyer. The reason is that the handover period of uncompleted flats is very long, and its buyers are unable to negotiate with the banks for a preferential loan interest rate, or discount interest rate, as existing housing buyers do when they apply for uncompleted housing loans, so they can only undergo stress tests on the basis of the higher bank “listing rate” (posted rate), and the amount of loans they can get is also less.
Wang Hongyu explained that if existing housing buyers can complete the transaction within 90 days after the loan is approved, (closing), can get the bank’s discount interest rate, that is, the actual loan interest rate after the listing rate is preferential. After the new policy takes effect, banks will conduct stress tests on buyers at discounted interest rates plus 2%. For example, if a buyer of an existing house can get a fixed discount rate of 3.1% for three years, plus 2%, it will be 5.1%. Before the new pressure policy took effect, banks now use the central bank’s five-year benchmark interest rate, currently 4.89%, to calculate the loan line. Even after the new policy came into effect, the interest rate used to calculate the amount of the loan was 5.1%, a limited increase compared with 4.89% before it took effect, and the impact was relatively small.
In contrast, applicants for uncompleted loans usually need to lock in the interest rate for more than 90 days, in which case they will not be approved with a more favorable discount rate. They can only calculate their loans at the bank’s listed interest rate plus 2%. For example, if the listing rate announced by a large bank today is 3.89% for 3 years, 4.24% for 4 years and 4.99% for 5 years, then according to the new federal regulations after January 1, when loan applicants undergo stress tests, if they cannot get concessions, they can only add 2% to the above-mentioned listing rates, that is, 5.89%, 6.24% and 6.99% respectively. Compared with the current five-year benchmark interest rate of 4.89% announced by the central bank, the larger of the two will eventually calculate the amount of loans that can be approved at 5.89%, 6.24% and 6.99%.