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How do changes to the mortgage stress test affect you?

On January 1, 2018, there was a significant change to the mortgage underwriting Guidelines in Canada. Under the new Guidelines, those hoping to obtain a mortgage from a federally regulated financial institution are subject to new conditions to qualify for that financing, including a new stress test.

As you may already be aware, the mortgage stress test has been in the news again due to a recent change in the Bank of Canada’s Conventional mortgage 5-year rate. If you are planning to buy or refinance a home now or in the future, we have some information about how updates to the mortgage stress test benchmark interest rate change might affect you.

How did the mortgage stress test change?

Contrary to news articles that refer to the mortgage stress test as “new” as of January 1, 2018, a form of it has been in place for quite some time. However, the rules previously only applied to borrowers with a down payment that was lower than 20% of the purchase price of the home. The goal of the test is to ensure that homebuyers continue to be able to afford their mortgage payments if interest rates should rise significantly over the amortization period of the mortgage.

The mortgage stress test requires borrowers of traditional bank mortgages to qualify for the mortgage at either the benchmark rate for a conventional 5-year mortgage, or the contract rate of the mortgage plus two percentage points, whichever is higher. The stress test was back in the news this summer when the benchmark rate was lowered to 5.19%; the first change in over a year.

What is a mortgage stress test?

To protect first-time or renewing mortgage holders, the Canadian federal government has laid out a set of rules that banks must use to determine if someone qualifies for a mortgage. The “test” identifies if the borrower would be able to afford their mortgage in the (likely) event interest rates rise

How does this change affect your mortgage?

A change in the qualification standards for a mortgage affects both those who are shopping for a home and those who are planning to refinance their existing home loan. If you are hoping to purchase a home, this change means an increase in the mortgage amount you may be eligible to obtain. If you are looking to refinance, you may be able to adjust the proposed amount of your payment that is to be allocated towards the mortgage principal amount, thus allowing you to pay down the loan faster.

It is important to note that, at the time of this writing, the stress test applies only to new mortgages. It is not currently applied when a mortgage is renewed, provided the same lender still holds the loan. If you are curious about whether or not you could qualify for a mortgage for a property you are interested in purchasing, you can get a general idea by using the online Mortgage Qualifier Tool provided by the Government of Canada.

Bear in mind, the accuracy of any mortgage qualification tool will be dependent on the information that you provide. The posted rates offered by financial institutions are provided for information purposes only, and they may not be reflective of the rate you qualify for based on your individual financial circumstances.

The first step in navigating the process of obtaining a mortgage is working with a mortgage broker who can help you understand the “ins and outs” of home financing in Canada. Your broker can help you evaluate the mortgage financing options that may be available to you when purchasing a home.


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