What is the new Mortgage Stress Test?

Understanding how the new Mortgage Stress Test works

I am finding that many new home buyers hoping to purchase a new home this year who have yet been pre-approved for a mortgage are not aware of the new stress test that they will have to qualify under.

As of January 1st 2018 new rules came into effect aimed at ensuring borrowers can pay off their mortgages in the event the interest rates rise. Lenders are now forced to ‘stress test’ mortgage applicants to make sure they are not borrowing above their ability to pay.

Prospective borrowers will now have their finances artificially inflated to one of the two following scenarios

  1. 2 percentage points higher than whatever rate they are able to get from a lender.
  2. At the 5 year average posted rate, according to the Bank of Canada

Anyone who fails this test cannot get the loan they are applying for, which means they will have to either buy something less expensive, increase their down payment or not have the ability to purchase.

We have an expert in our corner when it comes to financing for a purchase & an ally that has been a big part of our success when representing Buyers in competitive multiple offer situations. Let us put you in touch with the team & get moving.

Looking to determine how this stress test will affect you?