Are you stressed over the stress test? We have solutions to help!
A real world example of how we helped a client beat the stress test:
Purpose: A 45 years old woman who was working full time as an in home care nurse had six credit obligations outside of her mortgage, totalling $102,229. Her mortgage was an additional $271,000 at 2.7% interest rate. She wanted to decrease her monthly debt obligations and renew here home before the stress test took affect and was concerned about losing her interest rate and qualifying for the stress test.
Income: Full time, one income.
Credit score: Her credit score was a 527.
Challenge: She was extremely anxious, knowing that the stress test was coming, and having a credit score that would only qualify her for high rates. Under the stress test, this means her ratios would be too high.
Solution: Our plan of attack was to repair her credit score so she would qualify with a bank where she would get the lowest rate and just squeak in under the new qualifying regulations. We put her in a private loan 12% for 60 days, interest only. At first glance, this might not sound like the best deal but with six other payment obligations, making only minimum payments her balances never decreased, and she was paying 19% on some of them, this strategy actually saved her $1100 per month in payments. By wrapping all of her obligations together we saved her $2,200 over the two months she was in the private loan, and, more importantly we raised her credit score to 732.
At the end of the 60 days, with her credit well over the bank bench mark of 680, we were able to get her a 3.64% 5 year fixed mortgage which saved her another $800 on her monthly payments. By repairing her credit in only two months, we were able to give her the freedom to access a multitude of mortgage options and save her costs on monthly payments..
What is the stress test?
At the start of 2018, the Office of the Superintendent of Financial Institutions (OSFI) enacted the all-new mortgage stress test for mortgages. The “stress test” requires the qualifying rate for both insured (a down payment of less than 20%) and uninsured mortgages (a down payment of 20% or more) must be the greater of the Bank of Canada’s five-year benchmark rate or the rate homebuyers negotiate with the lender plus two percentage points.
Our goal is to help you navigate the stress-test and provide you the assist you may need to purchase the best home that meets your financial goals. In it to win it! Let’s get started on your mortgage approval journey today.