The government’s “B20” stress test has blocked countless people from buying rental properties as investments. The current 4.79% minimum qualifying rate means would-be buyers have to prove they can afford mortgage payments far above what they’d really pay.
Fortunately for some borrowers, there are alternative lenders (e.g., credit unions) that don’t impose the federal stress test. They qualify borrowers on the actual 5-year fixed payment they’d have to make each month, just like the “old” days (pre-2018).
Mind you, you’ll pay a sizeable rate premium for this flexibility. We’re seeing credit unions quote anywhere from 2.84% to 3.49% for non-B20 compliant rental mortgages, for otherwise prime borrowers. That’s a point or more above regular bank rates.
But consider that by qualifying at 2.84%, some borrowers are getting over 15% more buying power. Or, to put it another way, a typical borrower might need $8,000 to over $10,000 less income to get approved.
Non-B20-compliant rental financing isn’t for most. It’s a niche product for customers who:
Have fallback resources (i.e., funds they could tap in an emergency), and
Still want to buy a rental.
Finding such credit unions isn’t easy — mainly because they don’t like to advertise this workaround to federal guidelines. And some get upset when we mention them here by name since they prefer to fly under the radar. The best place to start is with an experienced mortgage broker. If they specialize in rental financing, they’ll know which lenders offer non-B20 compliant lending.
This & That
10-year Canada Mortgage Bond issuance almost doubled last year, writes First National. That extra supply of 10-year money helped 10-year fixed mortgage rates reach new lows in 2020.
Despite double-digit home price gains and inventories at unheard-of lows, BoC Governor Tiff Macklem assures that: “So far, we are not seeing the kind of excessiveness in the housing market that would really get us worried. This doesn’t look like 2017.” Uh-huh.
“…A taper [of BoC bond buying] could start as early as next quarter,” wrote RBC Capital Markets in a report this week. That, of course, would take some downward pressure off fixed mortgage rates, other things equal.
If the +/- $1.9 trillion U.S. stimulus package becomes law within 90 days, as expected, “it would mean the recent stimulus packages match the stimulus last spring, despite the dramatic improvement in the economy,” reminds Bank of America. “…This creates major upside risks” to inflation forecasts, the bank says.
“Reacting to BoC forecasts is a fool’s game. They may have over three hundred highly educated economists on staff, crunching numbers, and creating models, but their predictions are rarely on the mark.”—Michael O’Neill, Agility Forex (Source)