Homeownership is slipping out of reach for more and more Canadian homebuyers. And the reason is simple. The new mortgage stress test. At the start of 2018, the Federal government implemented a new stress test to ensure home buyers could afford rising interest rates. The results of the stress test have been devastating. It is estimated that in 2018, the stress test for uninsured mortgages derailed 40,000 potential home purchases.
The federal government has said it has no intention of getting rid of the stress test. Even if it did, there are concerns it would mean a return to an overheated real estate market. There is one silver lining though; the stress test is showing potential homebuyers how easy it is to use a Mortgage Investment Corporation (MIC) like Mortgage Company of Canada.
Canada’s Stress Test Sidelining Potential Home Purchases
According to a recent study, in 2018, the stress test for uninsured mortgages derailed 40,000 potential home purchases.1 Failing the stress test means homebuyers have to continue renting or living in their parent’s basement and saving up a larger down payment. Or they need to settle for a smaller home. That’s not a likely scenario for people living in the Greater Toronto Area (GTA) or anywhere in the Golden Horseshoe.
It’s not just potential homebuyers that are being unnecessarily hurt by the stress test. Current homeowners looking to upgrade are being rejected by the big banks too. This means they cannot sell their starter home to people looking to get onto the property ladder.
What is the stress test? On January 1, 2018, all federally regulated financial institutions implemented a stress test, making potential homebuyers, even those with a big down payment who don’t need mortgage insurance, prove they can afford an interest rate hike two percentage points higher than what they agreed to with their lender.
The study also points out that getting rid of the stress test would be equally as devastating for potential homebuyers. Canada’s housing prices would soar by 10% by the end of 2020. With the stress test, housing prices would rise 4%.
In the short term, housing activity would rise, but longer-term, housing affordability would be even worse than it is today.
Because of strict lending rules, most homebuyers, even well-qualified borrowers, believe the dream of home ownership is untenable. And it is if they rely on the big banks. That’s because they need to follow the federally regulated stress test. But MICs like Mortgage Company of Canada, because they are independent, do not need to follow these unnecessarily repressive rules.
Mortgage Company of Canada: Helping You Invest in High-Yield, Private Mortgages
Canada’s mortgage stress test, and other strict lending rules, derailed an estimated 40,000 home purchases in 2018. And because the federal government has no plans to revise or remove the stress test, the number of potential homebuyers being rejected for a mortgage is only going to go up. On the plus side, the stress test is showing borrowers how convenient, fast, and efficient it is to use Mortgage Company of Canada. Accredited investors have also learned the benefits of investing in mortgages secured by residential real estate.
A growing number of well-qualified borrowers who have been rejected by the big banks for mortgages are using the Mortgage Company of Canada to secure a loan. Again, that’s because the stress test only applies to federally regulated institutions. Mortgage Company of Canada, because it is independent, does not need to follow these rules.
This has allowed Mortgage Company of Canada to build up a diversified pool of mortgages secured by residential real estate in Toronto, the GTA, and Golden Horseshoe. Because of our thorough due diligence and careful lending process, qualified investors in Mortgage Company of Canada have enjoyed above-average yields.
In March 2019, Mortgage Company of Canada investors realized a tailing 12-month yield of 9.65%, with distributions paid monthly. This tops our own annual in-house target yield of 9.25%.2
If you had of invested $100,000 with Mortgage Company of Canada in 2009, in March 2019, that equity would be worth $269,273.
Our total mortgage portfolio is valued at $246 million and that number has been growing consistently. Over the last 12 months, our mortgage portfolio has increased by 66%. Of the 770 residential mortgages in our portfolio, 81% are located in the GTA, 11% are in the Golden Horseshoe, 5% are in major urban centers, and 3% are in Ottawa. The vast majority (76%) of our portfolio is made up of first mortgages; the remainder, (24%) is made up of second and third mortgages.
Overall, 63% of our mortgages secured by residential real estate matures in six months; 100% matures in less than one year.
There is a good reason why Mortgage Company of Canada has been so successful. Our management team, with a combined 45+ years of experience in real estate, public market, and risk market, is one of the most knowledgeable in the MIC industry.
Moreover, Mortgage Company of Canada is overseen by an independent board, something entirely unique to the MIC industry. It also follows a stringent underwriting analysis and leverages its third-party mortgage brokerage relationships as well as affiliated mortgage brokerage for quality mortgage originations.
Further, management and the Board of Directors have invested approximately $10.8 million in Mortgage Company of Canada, on the same terms as our investors, ensuring our investments are aligned.
To find out more, please contact Mortgage Company of Canada, visit our web site or contact Mortgage Company of Canada at 1-866-318-7222.
- “Canada’s Mortgage Stress Test ‘Sidelined’ 40,000 Homebuyers,” The Huffington Post, May 1, 2019; https://www.huffingtonpost.ca/2019/05/01/mortgage-stress-test-impact_a_23720288/.
- “March Newsletter,” Mortgage Company of Canada web site, last accessed May 2, 2019; https://www.mcoci.com/wp-content/uploads/2019/04/Mortgage-Company-of-Canada-–-March-2019-Newsletter.pdf.