If you are interested in financing your dream home in Markham, you will be required to pass the mortgage stress test. This test applies to all types of mortgages and is designed to ensure that you can make your monthly mortgage payments, even as rates fluctuate over the years.
What is the Mortgage Stress Test?
The mortgage stress test is not an exam you take with a teacher. Rather, it is a set of criteria that you must meet for a lender to confidently lend you the money for the purchase of your new home. Mortgage rates change throughout the years and this gives lenders the confidence that if rates drastically climb, you can still make your payments and you are less likely to default on your loan.
How Does the Mortgage Stress Test Work?
When you apply for a mortgage in Markham, the lenders will provide you with an estimated interest rate based on your current financial situation, employment, etc. The lender will not only look at this current interest rate, but he or she will look at the average five-year fixed rate plus 2% from Canada’s big banks. Throughout 2020, these rates have significantly changed so you will want to discuss the current stress test rate with your lender at the time of your application.
How Can I Pass the Mortgage Stress Test?
Excellent financial health is key to passing the mortgage stress test and receiving enough financing to purchase a home. A few tips to help you pass and obtain financing include:
Keep your debt low. The more debt you have, the higher your debt-to-income ratio will be. This will make it more difficult to qualify for a home loan. Additionally, your debt can affect your credit score.
Increase your income. The more income you have, the easier it is to purchase a home, build your savings, increase your down payment, etc. If purchasing a home with your partner, both incomes can be added to help you more easily qualify for a home loan.
Increase your down payment. The larger down payment you provide, the less money you will need to borrow from the bank. This makes it easier to qualify for a home loan and pass the mortgage stress test.
Use an online calculator. If you have any questions about your current financial situation and whether you will pass the mortgage stress test, many online calculators will provide an estimate for you. Keep in mind that these calculators do not guarantee that you will qualify for a home loan but it is an excellent place to start.
If you have any questions about financing, lenders in the Markham area, or the home-buying process, contact real estate agent Martin MacFarlane.
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