What is the new mortgage stress test in Canada?

Effective Jan 1 the newest mortgage rule was put into effect in Canada – the “stress test.” This video is going to give some background on mortgage stress tests, then explain the new rule.

Currently, if a borrower is buying with less than 20% down payment & is therefore getting an insured mortgage, they already have to qualify off of a stress test rate (being the 5 year posted rate, currently at 4.99%). For borrowers with 20%+ down, they can avoid this same stress test ONLY if they take a 5 year fixed mortgage (or longer), which means that if they want a variable or, say, a 2 year fixed, they would have to qualify off the 5 year posted rate not their actual interest rate.

The new requirement specifically impacts borrowers getting uninsured mortgages, which you can think of as borrowers with 20% down or more. Now, they will have to qualify for their financing based off a new stress test being their interest rate + 2%. So if they chose, say, a 5 year fixed mortgage with a rate of 3%, they would have to qualify based off a rate of 5%.

The irony of all this is that shorter terms generally mean lower rates, which therefore means that borrowers will qualify for larger mortgages taking shorter terms & shorter terms result in a borrower being more vulnerable to interest rate increases which doesn’t exactly benefit clients.

If you’ve bought a presale prior to these new rules being implemented & are curious how this will impact you, as long as you have a purchase contract dated prior to Jan 1, 2018, you’ll be grandfathered under the previous rules.

Additionally, you have a mortgage coming up for renewal & are not able to qualify to switch under the new rules, all is not lost. There are ways we can still qualify you off the previous rules.

If you’re looking to buy a place but can’t qualify for the price point you need under the new rules, give me a call. There are a still a few ways we can still get you into a purchase qualifying of your contract rate.

Ryan Zupan