It was on June 1st of 2021 that the Liberal Government last increased the “stress test” for home buyers taking on a mortgage, which encompasses the vast majority of home buyers.

For those unaware, a stress test requires that a home buyer must qualify at a higher rate of interest compared to current lower interest rates to ensure they can still make their mortgage payments if interest rates rise.

In essence a stress test is intended to ensure that a home buyer has some excess fiscal capacity at their level of income to afford an increase on their mortgage payment if interest rates should increase.

While some may argue that the stress test protects people from potentially higher interest rates, in my experience many who are fortunate enough to pass the stress test and buy a home don't stop there.

They proceed to borrow to make additional purchases, like home improvement, furniture or car loans.

Why do I raise this now?

As many will know this week it was widely expected that the Bank of Canada (BOC) would raise the key interest rate however this did not occur. 

Instead, the current rate was maintained although the BOC did warn that:

“Interest rates will need to increase to control inflation. Canadians should expect a rising path for interest rates,”

This means for those with a variable rate mortgage. their monthly payments will be increasing in the near future. 

For those with a fixed rate mortgage, when their current rate expires, they may also face higher rates upon renewal. 

While stress tests are important public policy tools, there are also other challenges that remain. 

Based on feedback I am hearing from many households here in our region, there are new fiscal challenges emerging putting pressures on household finances.

Obviously with the highest in 30-year inflation, many citizens are now forced into paying more for goods, groceries and in some cases services and yet receive less value in return.

Gasoline and diesel prices have increased, likewise the cost of gas to heat your home has also increased, as have some of the taxes on your home heating. 

At the same time many citizens have also noticed, because of higher premiums for payroll deductions like the Canada Pension Plan, that their net take home pay is less from what it was last year.

In addition, despite Liberal Government promises to reduce your monthly cell phone bills by “25%” this has not occurred.

While the Liberal Government also promised not to tax online streaming services such as Netflix, as many now know, online streaming services are now taxed.

All of these increased taxes and fees take a bigger bite out of your household net income at a time when payroll deductions are doing the same.
 
Depending on how much the Bank of Canada raises the interest rate, I have heard from various citizens who indicate their monthly mortgage payment could increase as much as $400 to $800 a month, which is a significant hit to their net income.

Some have suggested increased interest rates combined with higher inflation, fees and tax increases is creating a situation they cannot afford.

More so as ever increasing CPP and Employment Insurance premiums (which the freeze on premiums ends this year) further erodes their net discretionary income. 

My question this week: 

Are you concerned about your own household affordability? 

I can be reached at [email protected] or call toll free 1-800-665-8711.