The rules may leave some borrowers trapped with their current lenders, preventing them from getting the best possible interest rate
Will Dunning is a Toronto-based consulting economist. He specializes in housing market analysis.
As a result, their mortgage payment as a percentage of their income will be lower than it was in 2018. In the example I’m using, the new mortgage payment would be equal to 25.1 per cent of income, versus 26.3 per cent in 2018. They were deemed to be qualified for the mortgage five years ago. Today, they are even more qualified, and a lot of lenders will be interested in them.
The situation is much more challenging for people who bought two years ago. At an initial 2 per cent interest rate in 2021, their cost-to-income ratio might have been 23 per cent. Renewing at 5 per cent, the ratio would jump to 28 per cent, and the test at 7 per cent would calculate a ratio of about 33 per cent. Once taxes and utilities are added many of them would fail the stress test.
The banks don’t have an unlimited ability to charge whatever they want, because borrowers could move to an unregulated or “alternative” lender – but at a higher interest rate, often above 6 per cent. That option creates a ceiling on how much the existing lender can charge.
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