—The Mortgage Report: Sept. 30—
- The costs you’re expected bear to carry a new mortgage have never been higher—at least based on how lenders assess you as a mortgage applicant.
- Rocketing home prices and a stubbornly high “stress test rate” have pushed the basic inflation-adjusted cost to carry a home (i.e., average mortgage payment + heat + property taxes) to an all-time high.
- Other things equal, if your income growth hasn’t kept pace, that means it’s gotten relatively harder to win that mortgage approval.
- Nominal carrying costs, based on the stress test rate, are also at an all-time high, according to RateSpy calculations. Such theoretical costs are what lenders use to calculate borrower debt ratios. That tells them, in part, if someone is likely to pay them back.
- It’s most interesting, however, to view theoretical mortgage carrying costs after the effects of inflation are stripped out. By doing this, you uncover the real growth in costs. As the chart below shows, those “real” costs have doubled this millennium according to RateSpy data.
- Expect this surge in Canada’s “typical” minimum stress test payment to boost demand for credit union mortgages qualified on 5-year contract rates. One credit union we’re aware of uses a qualifying rate of just 2.69% when approving borrowers with 20% down payments. Compared to the official minimum stress test rate of 4.79%, that credit union’s lower qualifying rate boosts buying power 20.7% (almost $80,000 given an $80,000 household income and assuming no other debt).
- Note: Such “non-OSFI-compliant” products are uncommon. Moreover, they’re not available in most provinces. But we know of a few lenders offering this flexibility in Ontario and B.C. Speak with a broker for more details as we can’t promote them by name here.
- Despite national average home prices at a record, up 18.5% in one year, average nominal mortgage payments are still below the all-time high. We could potentially break that April 2017 peak as soon as October, however. For more on this, see: Mortgage Payments Near Record High
A New Low for 5-year Rates
- Canadian 5-year fixed rates have cracked the 1.50% floor for the first time ever, at least in Ontario.
- Default-insured borrowers in the province can now access rates as low as 1.45% for a full-featured mortgage. That’s a point below where they were eight months ago and half of what they were 19 months ago. Here are the latest 5-year fixed rates.
“Will you shut up, man?”
- Apparently, that’s how people talk to each other in today’s ‘un’-presidential debates. Insults overtook facts in Tuesday night’s Trump-Biden showdown, and rate markets barely cared. One day later, Canada’s 5-year bond yield has barely budged, up 1 basis point.
Rush Closes Get Higher Rates
- Some of the lowest-rate lenders are taking 10+ business days just to look at an application plus another 10+ business days to review documents. So-called “quick close” lenders are becoming an endangered species — if your criteria is the lowest possible rate.