Allegra homes the mimico . The mortgage stress test interest rate will be raised to 5.25%

Allegra homes the mimico . The mortgage stress test interest rate will be raised to 5.25%. The Federal Financial Regulatory Office raised the level of the BMel 20 mortgage stress test to 5.25%, or 2 percentage points higher than the market interest rate offered by banks to borrowers, whichever is higher, starting on June 1.

However, the Canadian news agency reported that the interest rate of the new stress test will undergo a round of consultation before it takes effect, meaning that interest rates are likely to be fine-tuned.

At present, the average five-year fixed mortgage rate issued by major Canadian commercial banks is 4.79%, but the actual five-year fixed mortgage rate is probably a little more than 2%, so 4.79% is the interest rate currently used for mortgage stress tests.

In March, May and August last year, the Bank of Canada cut the benchmark interest rate for five-year fixed mortgages three times in a row, from 5.19 per cent to 4.79 per cent, and the central bank governor said the interest rate would remain low until at least 2023.

However, now, only more than half a year later, the federal government has finally been unable to withstand the repeated bombardment of the media for more than a month and stepped in to regulate and control the property market. The loan pressure increased to 5.25%, even 0.06% higher than before the new crown pandemic.

Jeremy Rudin, director of the Federal Financial Management Office, explained that the increase to 5.25% was that “the system needs to be prepared to return to the situation before the pandemic, when interest rates will rise again.”

“even by recent standards, our interest rates are very low,” he said. But in a sense, it is temporary. We need to ensure that when current home loans are renewed in three, four or five years, lenders are protected so that borrowers can repay these debts and maintain the stability of the financial system. “

This means that borrowers need to prove that they are able to repay their mortgages at higher interest rates before they can get bank loans, and it also means keeping a group of potential buyers out of the property market. and eventually ease the upward pressure on Canadian house prices to some extent.

Canada’s current loan stress testing policy has been implemented for more than three years since the beginning of 2018. The original intention of the federal government to introduce this policy is to cool the overheated housing market in 2016 and 2017, which will be promulgated in the fall of 2017. Since then, a group of buyers have been running into the property market before January 1, 2018. It is estimated that this phenomenon will reappear between now and June 1.

After the official implementation of the Bmur20 policy in 2018, the property market gradually entered a pullback and began to rise slowly again in 2019; after the sudden COVID-19 epidemic in 2020 led to a brief stagnation in the property market, under the fiscal policy of continuous interest rate cuts by the central bank and heavy spending by the government, the property market began to show signs of overheating by the end of 2020, and house prices rose too fast, which finally attracted the help of the federal government.

According to the Canadian news agency, the current increase in loan stress test interest rates is also likely to be extended to borrowers who have to buy loan insurance, that is, buyers with a down payment of less than 20%. Sherry Cooper, chief economist at Canada’s TD Bank loan Center, said the Federal Treasury is likely to follow the pace of the Federal Financial Management Office by raising stress test rates for insured borrowers.

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