Wondering how the rate increases (and subsequent stress test increase) would impact your ability to qualify for a mortgage?
Suppose your household income is $120,000, you have good credit and you want to buy a condo in a major urban centre. Let’s say the property taxes are $2,400 and the condo maintenance/strata fees are $360 each month. How has the current rate increases impacted the affordability of a buyer looking to purchase through a bank these days:
High-ratio purchase with a down payment of 10% or more
Now, let’s take this same borrower in all respects, except they have a down payment of less than 20%, and so the maximum amortization period is 25 years.
Mortgage type | Lender type | Stress test rate | Down payment | Amz. | Mortgage amount possible | |
Variable | Bank/C.U. | 5.25% | 10% | 25 years | $570,000 | |
Fixed | Bank | 7.14% | 10% | 25 years | $480,000 |
With the rate increases, many people have seen their affordability drop $80,000-90,000 based on the stress test of around 7.14% as opposed to the stress test rate of 5.25%. This could be a decrease for someone looking in an area where a minimum price might be $600,000 since in the current environment, you would only be able to afford around $510,000.
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