Mortgage Stress Test

WHAT IS THIS “STRESS TEST” YOU ASK? It is a test used by Lenders to determine whether a borrower will be able to afford his/her mortgage payments in the event interest rates go up. The test itself requires that a mortgage applicant prove that he/she can make payments at the qualifying interest rate plus two percentage (2%) points OR the Bank of Canada’s five-year benchmark rate, whichever is higher. For example, if the Bank of Canada’s benchmark rate is 5.34% and the qualifying percentage is 3.75%, then the borrower would have to qualify for 5.75% (3.75% + 2%) as it is the higher of the two. Lenders are hoping that putting people through this test will cut down on the number of defaulting borrowers. At one time, borrowers did not need to worry about any form of stress test if they put down 20% or more of the purchase price when buying a home. Now, it does not matter how much the borrower puts down or whether they are refinancing their mortgage with a different financial institution, the Lender will put them through this test.

“The stress test has cut first-time homebuyers out of many markets in Canada and caused a ripple effect through every tier of homebuyer.”