If you’re in the market for a mortgage, you’ve likely heard that you will have to undergo a “mortgage stress test”—but do you know what that really is? Or what it will take to “pass” it? If not, you’re not alone—a recent study by TD reveals 43 percent of Canadians aren’t confident in their knowledge of the stress test rules.
So let’s break it down.
On the Bank of Canada’s website, you can find its posted rate (find it here, under “interest rates”). If you don’t require mortgage default insurance (typically, because you’re putting down 20 percent or more), you must qualify for a mortgage at the Bank of Canada’s posted rate or the rate offered by your lender plus two percent—whichever is higher.
If you’re an insured buyer (meaning, you have a down payment of less than 20 percent), you must qualify for a mortgage at the Bank of Canada’s posted rate or the rate offered by your lender—whichever is higher. It’s important to note that insured buyers don’t have to add the extra two percent.
So why has talk about the mortgage stress test increased since 2018? Well, while stress tests have existed for insured buyers for quite some time, last year was the first-time uninsured buyers had to undergo the same type of scrutiny.
It’s also important to mention that the stress test only applies to federally-regulated institutions—so lenders, such as credit unions, don’t have to do them. For existing mortgage holders that want to renew, the stress test only applies if you opt to switch lenders—and the lender you’re switching to is a federally-regulated financial institutions (like a bank).
Want to know more? Give me a call! I’d love to answer any and all of your mortgage-stress-test-related questions—or any other mortgage questions you have on your mind!