Photo: James Bombales

The new year is here, and with it a new stress test for uninsured mortgage borrowers. Many industry experts have predicted that the test will shut first-time buyers out of the market — but there may be one way to get around the stricter rules.

“The mortgage rule changes apply to the big banks, but not to alternative lenders, so it’s likely that we’ll see a spike in alternative mortgages in the new year,” Zoocasa managing editor Penelope Graham tells BuzzBuzzNews.

The test — which requires all uninsured mortgage borrowers to qualify against the Bank of Canada’s five-year benchmark rate, or at their contract mortgage rate plus an additional 2 per cent — came into effect on January 1.

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Buyers unable to qualify against the stricter standards may consider alternative lenders, such as credit unions. Graham says that’s not necessarily a bad thing — though it does come with its own risks.

“If you go with a credit union, that’s still a reputable lender,” she says. “But the interest rates will be higher, and buyers could get into exceedingly expensive debt.”

Graham says that those looking to buy, but unwilling to consider the alternative lending market, still have some options.

“Some buyers may choose to lengthen their amortization periods, from something like 25 years to 30 years,” says Graham. “That way, their monthly payments go down, and they’re able to pass the stress test.”

Buyers might also adjust their plans by considering different dwelling types.

“If a family was considering buying a detached low-rise home, they might consider a townhome instead,” says Graham. “If they were thinking of a condo with multiple bedrooms, they might opt for a one bedroom, or to lose the parking space.”

Ultimately, Graham thinks that many Canadians will adapt their plans around the new regulations, rather than opt out of homeownership entirely.

“Canadians are very resilient when it comes to homeownership,” she says. “They’ll find a way to get into the market if they want to.”

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