Anyone looking for a mortgage in the last few years has been introduced to the “stress test.” In order to qualify for a mortgage, Canadians must prove they can withstand an increase in rates, which requires them to qualify for payments far above what they will actually pay. The good news is that the Canadian government has decided to ease up on the stress test.
Lower qualifying rate
Effective April 6, 2020, anyone applying for an insured mortgage (one with less than 20% equity) will see a fairer stress test used. It’ll be based on the median five-year fixed insured-mortgage rate plus two percentage points. This makes the stress test more dynamic and inline with the actual rates people are borrowing at and will be adjusted every week.
It is expected that the same new benchmark rate will be used for mortgages that don’t require default mortgage insurance (those with more than 20% equity). Looks like the qualifying rate for uninsured mortgages will change to the greater of:
- The actual contracted mortgage rate plus 2% – or
- The new insured benchmark rate described above.
This means the stress test for uninsured mortgages will still be a slightly tougher hurdle.
The NO stress-test option if you have more than 20% equity!
Some of our lenders have a mortgage that allows clients who have more than 20% equity to qualify for a mortgage without the stress test. This mortgage has a rate premium attached, which means it’s an option only for those who can’t qualify under the stress test. Benefits may include lower rates than B/private lenders, no fee and 5-year terms. If the stress test is too tough a hurdle for your situation, this is a great option to consider!
What’s the bottom line?
Any drop in the qualifying rate – with the new stress test or declining rates in general – will make qualifying easier and increase your purchasing power. So, the upcoming change on April 6 is good news.
Is the mortgage world still confusing? Yes, absolutely – probably more so! That’s why great advice based on experience and access to multiple lending options is so important. While the stress test may be less stressful, our goal is to reduce stress from your entire mortgage experience and help you build wealth with the right mortgage now and excellent advice going forward. Get in touch at anytime; these are exciting times for buyers and homeowners!