The stress test is applied to all mortgages.
Stressing a mortgage rate happens when you are quoted an interest rate. Every Broker/Agent must apply a 2% premium for mortgage affordability concerns. This is a rule brought about by the Bank of Canada in 2016 on insured mortgages and later applied to any mortgage in 2018.
How does the stress test affect borrowing?
Generally, it affects the total amount of mortgage amount you can be approved for. Applying this stress test has demolished the first-time home buyer market. In turn, this made most premium mortgage rates hard to obtain. Long gone are the low rates due to market inflation and the new mortgage rules. Additionally, the new rules call for borrowers to be approved on a B Lending platform with higher rates and shorter terms.
Will the stress test be removed?
Its been almost 7 years since this new rule for borrowing was put in place. With home prices surging, clients are being asked to provide dramatically larger down payments. Undoubtedly, this larger downpayment lowers the borrowing amount and monthly payment. Additionally, it ensures the client can afford the payment. At a typical 5-year fixed rate of 4.84%, a client would be stressed at 6.84%, even though this stress rate doesn’t seem to be reasonable based on market conditions, and the rate could very well never surpass a 5-year fixed rate of 6.84%.
Stress Test Solutions.
You cannot avoid these qualification standards when applying for a mortgage, but a licensed Broker/Agent can definitely help guide you with the best path for your mortgage with an exit strategy. At Mortgage Suite, we can find the current solution for your borrowing needs, with an exit plan, and or a plan to renew into a local credit union and lower rate when your renewal comes due. Furthermore, your broker should look at a lender with a graduation program.
