Stressed About The Stress Test?
November 8, 2017
Prime Increases Despite NAFTA Discussions
January 17, 2018
As anticipated, the Bank of Canada (BOC) left the prime rate unchanged today. The Governor’s comments seemed to describe the economy as that rare breed of driver that uses both feet when driving – usually unwittingly with one foot resting on the brake while the other is on the gas.
To summarize the press release from the BOC: every cloud has a silver lining and therefore, logically, every silver lining surely must have a cloud. A few examples: exports are down, but global growth should pick up – employment figures have picked up, but the total hours worked has decreased – inflation has picked up, but due to tempory items it should ease. Combine these factors with the “considerable uncertainty” of geopolitical events (i.e. Rocket Man vs. The Donald) and if your first name is Stephen and you’re a banker living in Ottawa, you have enough reasons to keep the prime rate as is.
Key Points From The Bank of Canada Announcement
- Prime rate left unchanged
- US economic growth spurt expected to wain
- Canadian employment figures spiked
- Business spending continues to grow
- Exports have declined but expected to grow next year
How Your Mortgage Is Impacted
- Pressure on fixed-rate mortgages has slightly increased
- Variable rate mortgages discounts likely to stay the same
- Stress Test coming into effect on January 1st, 2018.
- Rate holds available for purchases until April 2018
Looking forward into 2018
At the risk of sounding like a broken record, I can’t stress the Stress Test enough!
This new legislation is going to catch everyone off guard. Here’s a really rough calculation you can do to see how you will be impacted:
Take your gross family income and multiply it 7.28. That will give you a rough mortgage dollar amount you can qualify for with today’s mortgage rules. Now take that same income figure and multiply it by 5.70. This is the mortgage figure you qualify for as of January 1st, 2018. The effect of the new rules is a 21% reduction.
But here’s where people are going to get caught off guard…
If you already have a mortgage, is that second figure you calculated using the new rules smaller than your current mortgage balance? If it is, when your mortgage matures you’ll probably be stuck renewing with your current institution and not be able to shop for a better rate. Surprise! It’s enough to make you wonder who was actually drafting this new legislation.
There is still time to lock in a pre-approval or secure a refinance approval, but with the holidays fast approaching, time is running out.
Where are interest rates going
The next Bank of Canada meeting is January 17th, 2018 – which be a full economic review.
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