How To De-Stress About The Stress-Test 2018 Edition.
Written by Jake Abramowicz
A lot has already been written online about the new changes in the mortgage market that were announced this week. Yes, you can now borrow LESS than before. Yes, house prices are high in the GTA and yes, the changes are a little heavy-handed. However, not many have yet addressed how not to get too stressed about these changes, so I’m going to give it a crack.
First off, what’s up? Why the change? Simple. Government of Canada is continuously worried about our housing market correcting AND about normal every-day Canadians having access to housing for a fair price. Fine. So they made it harder to get a mortgage in the hopes that this will prevent any big calamity down the road AND maybe to level off house prices so that those normal folks can buy property. An altruistic goal, if I may say. An unlikely one, but, the road to hell is paved with good intention, right?
So how not to stress out:
1. Maybe don’t buy a house to your absolute maximum borrowing limit? What a lot of the press hasn’t talked about is this: Yes, right now you CAN buy a property and borrow up to 7 times your income (and the new test will mean 5 times your income), but nobody has asked: SHOULD YOU? No. You should not. And frankly from what I see, not many people do.
Look, I get it. Housing is very expensive here, from the cookie-cutter condos to the luxe market. It’s a damn expensive city and it should be! We have Google building a neighborhood, we are routinely top 5 IN THE WORLD on most economic lists, and we live in an absolutely amazing city period. It’s expensive. But it’s also BIG. And there are many options if you’re willing to stretch your boundary, options where homes are still “affordable” in the GTA. So, go out there and think out of the box. Don’t go to the max, and you’re not stressing out.
2. Buy an income property. Just the other day a first-time buyer of mine who has been looking made a successful offer to buy a property with multiple income streams. He paid nearly $900,000 for a house with three units that are perfect to rent out. Although he qualifies for the maximum amount available under today’s guidelines (or, 7x income), he’s not using the whole amount because he’ll have 65% of his mortgage payment paid by his tenants AND he’ll get to live in the prime apartment in the house. So, when getting stressed-out, go find something with one or two income streams and that will greatly help you lessen your stress financially.
3. Get married. Ok I’m joking here, sort of. As someone who has been married for 10 years (woooo!) I can tell you that having TWO incomes is a very amazing thing that’s less stressful. If you’re in the stage of your life where you’re thinking of settling down with someone, an extra income coming in will help you afford a lot more house, so consider it. (Note: I am NOT advocating marrying for money!) If you’re not in the mood to ever settle down with someone (that’s totally cool by the way), you can also consider buying 2-unit property WITH another buyer and “marry” your finances that way.
4. The Bank of Mom And Dad. Although we don’t love relying on other people to help us out, sometimes when getting stressed about your mortgage it’s the only option. Mom and Dad (or, Mom OR Dad, or, sister, or brother etc) can help us out greatly here by adding their incomes to the mix. Let’s say you’re no longer able to get into the place you can afford because of the new rule. Let’s say also that you make a solid business case about how you can afford it because you’re taking a 5-year fixed rate, and your payments won’t go up, and you’re in a solid rising-income job. Well, guess what? Mom and Dad probably are either retired, or, still working, and, have a nice income to help out. So let’s bring them in on the conversation and have them help via more income or more down payment! Voila!
These are four amazing ways where you can de-stress about this change and with my help, get to where you want to be. Owning a property isn’t something to be taken lightly and each of these options carry with it some risk, but if you strategize right, you’ll end up way ahead.