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Mortgage Debt On The Rise, But Slowly

Total mortgage debt in Canada rose to $1.56 trillion in May 2019, up 3.64% year-over-year from last May. While that may seem like a small percentage to increase, a 3.64% increase to $1.56 trillion represents a nearly $55 million increase in mortgage amount.

It’s certainly a lot weaker than the 22.2% year-over-year mortgage growth that Canada experience in May 2018, and is in fact the slowest growth of any may in the past 29 years, excepting 2001.

This news is a little bit distressing for the real estate industry because it showed slow growth in the middle of the traditionally busy season. If the “busy” season doesn’t account for much mortgage growth, how will the slow season look?

Keep in mind this slow growth is happening at the same time as near-record low 5-year fixed rates are popping up in the market. It’s possible to get a 5-year fixed rate that’s 0.19 percentage points lower than a 5-year variable rate. Traditionally, variable rates are lower than fixed at the start of your mortgage, so this is really quite surprising.

Some banks and credit unions are offering even lower rates, such as DUCA with their incredibly low 1.99% mortgage rate for a 2-year fixed.

Despite these low rates, the total mortgage amount is rising as quickly as lenders would like. And it’s mostly because it’s harder than ever to actually get a mortgage in the first place.

The newly revised mortgage stress test that was put into effect on January 1, 2018, has had quite the effect on prospective homebuyers. Now that everyone, including people with more than 20% down and those renewing their existing mortgages, has to qualify at the benchmark rate (or higher), housing affordability has dropped for many.

Measures like the “improved” First-Time Homebuyer’s Incentive that the Liberals included in the federal budget and expected to come into effect in the fall don’t tackle the root problem – houses are too expensive for many.

Obviously you can’t get a mortgage if you can’t pass the mortgage stress test. But the reason you fail the stress test is probably because housing prices are too high in your area. That leaves you with either:

a)      Increasing your salary

b)      Moving farther away from your job

c)      Getting a new job in a different city altogether

None of these are easy, and often come with a tradeoff somewhere else in your life. We’ve gathered a few guides that we find useful if you want to give one of these solutions a try:

How to ask your work for a raise

How to cut your commuting costs

How to get a job in a new city

 

Will lowering my mortgage rate improve my affordability?

Yes and no.

While getting the best mortgage rate in Canada   is a great way to save money on your mortgage (we’d argue it’s the best way) it may not be the magic bullet to solving your affordability problem.

The reason is because no matter how low your mortgage rate is, you still have to pass the stress test. As of July 4th, 2019, the lowest possible rate that the benchmark can reach is 5.34% - the 5-year benchmark. Even if you had a mortgage of 1.00%, you would have to qualify at 5.34%.

If you were quoted a rate higher than 3.34%, then lowering your rate would see your affordability increase, but rates lower than 3.34% don’t affect your affordability in the eyes of the stress test.

It’s possible to circumvent the stress test in a couple ways, which can help improve your affordability. Read all about the stress test here.

You can quickly calculate your affordability by using our home affordability calculator.

 


Chris Chris 07/12/2019
Canadian personal finance buff and all-around writing enthusiast, Chris loves breaking down complicated money ideas to show that they're really not so complex. 
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