One Way to Get a Mortgage Without *the* Stress Test

The Mortgage Report – May 26

• Stress Test Exception: Here’s a tip for renewers.
  
  If:
  
  A) you want to switch to a new lender at renewal, and
  B) your mortgage closed before October 16, 2016, and
  C) you haven’t refinanced since…
  
  …then some lenders let you qualify at their best 5-year fixed rates instead of at the government’s “stress test” rate (which is normally the policy). That’s the difference between having to prove you can afford a payment at 4.94% versus just 2.49%, based on current rates. This 245-basis-point-lower “qualifying” rate makes it far easier to get approved if your debt ratios are above average. Moreover, you’ll generally get the lender’s best conventional insurable or default-insured rates to boot. If you correspond to A, B and C above, brokers are your best source for lenders who make this stress test exception. (Note: insured rates are generally lower than uninsured rates. To get the best default-insured, a.k.a., “high-ratio,” rates without additional insurance fees, you need the default insurance you purchased—at the time you bought your home—to be active. If your mortgage has 20%+ equity and meets “insurable” guidelines, no existing insurance or insurance fees are required.)
• Bracing for Impact: To the extent it says something about the housing outlook, banks are bracing for losses by making record provisions for credit defaults. Case in point: National Bank just set aside $504 million for credit losses (in Q2), $200+ million more than some analysts had forecast.
• Historic Divergence: Relative to Canada’s 5-year bond yield, the stock market (TSX Composite) has never been higher than it is this month. Stocks are acting like the pandemic crisis will be over next year. And it might, who knows? Meanwhile, the bond market is pricing in a far more uninspiring future for Canada’s economy — which is just as plausible of an outcome. That’s notwithstanding the fact that central bank bond buying is keeping yields a bit lower than they otherwise would be. In any case, the path of mortgage rates will hinge largely on which market is most right. Time will tell. For what it’s worth, the bond market is much bigger than the stock market, with far more institutional trading (a.k.a. “smart money”).

• Crude Surge: Falling production drove oil to an 11-week high Tuesday. This is supportive of interest rates near-term.