Easy Money: Changes to the Mortgage Stress Test Ahead

Beth Graddon

Changes announced by Bank of Canada last week will make getting a mortgage easier for new home buyers in Canada as of April 6, 2020. It’s important for tax and financial advisors to understand the new guidelines in order to assist Canadians with sound debt management strategies.

When the mortgage stress test was first introduced two years ago, it required that buyers qualify based on the Bank of Canada’s average five-year-rate plus 2%. The idea was to ensure that borrowers could still afford their home following a rate increase. However, Bank of Canada’s rate is higher than the average industry rate, making it hard for buyers to qualify for a mortgage that should be affordable by all other lending criteria.

Young Canadians looking to buy their first homes (many with student debt) in a market where housing costs are becoming increasingly unaffordable for a single income household, were finding it too challenging to get a piece of the real estate market. This change will make home ownership more accessible.

However, Canadian home buyers still require guidance on debt management from their tax and financial advisors to ensure home ownership makes sense for them. What should first be considered?  It’s important to always pay any tax debt first to avoid cash flow crunches that can be forced upon delinquent taxpayers, for example. In severe cases, CRA can garnishee wages or seize assets of delinquent taxpayers.

But then what comes next? Credit card debt? Mortgage debt? Operating line repayments? 

“Debt can be very stressful, especially over the long run,” says Evelyn Jacks, Founder and President of Knowledge Bureau. “For these reasons, bookkeepers, tax and financial advisors need to be proactive in approaching the subject.  In fact, the more assets a client has, the more likely it is the debt levels are higher too.  You can help by preparing personal net worth statements at tax filing time.”     

Advisors can step up their games in this area by seeking professional credentials focused on helping Canadians manage their debt. Knowledge Bureau’s Debt and Cash Flow Management certificate course helps professionals in the tax, bookkeeping and financial services gain the skills needed to proactively help their clients plan for and manage their financial health by reporting on improvements in debt and savings over time.

The focus is on a healthy balance sheet and responsible use of debt in building family wealth. Offering debt management services is a great way to build trust, and help clients find solutions to stubborn and difficult problems.

Since real estate makes a major contribution as a wealth builder, and the primary residence is the biggest asset most Canadians own, this has benefits to a Real Wealth Management strategy as well. Understanding the implications of these current trends, and how they should be integrated into holistic advice for clients, is key to the multi-faceted approach that is being demanded of today’s advisors.

Additional educational resources: Take advantage of a special Leap Year Offer, only until February 29! Enrol in any two online certificate courses with Knowledge Bureau for only $995 (you save 37%).

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