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, anyone applying for an insured mortgage (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 actual rates people are borrowing at and will be set every week.
It is expected that the same new benchmark rate will be used for mortgages that don’t require default mortgage insurance (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.
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 with the team at MiMortgage.ca at anytime, these are exciting times for buyers and homeowners!
