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B-20 Stress Test

What is it and what does it mean to you? If you have applied for a mortgage or a preapproval since January 2018, you will have been affected by B-20.

Prior to rule changes, Canadians could qualify to borrow approximately 22% more than now (other debts and creditworthiness aside).


This impacts borrowing capacity of everyone, first time home buyers, those looking to refinance to take some equity out of their property; possibly to pay out higher interest debt or fund a large purchase.


If you have an existing mortgage that will be maturing, these new rules will affect you also.


Currently, most lenders do not have you requalify for your existing mortgage renewal, if you are not making any changes to the amount or title. But, if you wish to change institutions for a lower rate, you will have to qualify under the new guidelines; this can handcuff you to your current financial institution and leave you at the mercy of their mortgage terms and rates.


There are a significant number of retirees that have a mortgage in retirement; those that are on a fixed income are very vulnerable to these new guidelines.


Every situation will be different, some may have investment income, a rental suite in their home, or a pension. But others will be worse off; they may depend solely of Government benefits and be struggling to meet their average debt burdens.


It is the average Canadian who will suffer most from these rule changes; they will be unable to qualify for conventional financing to access their home equity to assist in lowering the burden of their monthly debt payments.


There are the folks who will be faced with the prospect of either selling their homes to pay their debts and then renting (which could be more expensive) or look for alternative means of financing.


HomEquity Bank is a Schedule 1 Canadian Bank. The new B-20 stress test does not apply directly to their reverse mortgages, and approvals are based solely on clients’ age and the value of their home.


Here are a few things to note: Clients can access up to 55% of the value of their home, tax-free. Clients (both spouses) must be a minimum of 55 years of age. 

 

Applicants will never be required to make regular mortgage payments as long as they live in the house.


Funds can be used for any purpose, can be a lump sum, periodic payments, or even provide an income stream.


A reverse mortgage is not for everyone, but for the right person, it can mean the difference between staying in your home comfortably or having to sell and find a new place to live. It can also be the difference to having to move into a care facility or being able to have care in the comfort of your familiar surroundings.


It can pay to book an appointment with a mortgage professional, to have a quick look at where your money is going, discuss what interest rates are up to, and determine if you are getting the most use out of your mortgage features.

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