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In an attempt to slow down the housing market, the Office of the Superintendent of Financial Institutions (OFSI) has proposed to increase the stress test as of June 1, 2021.

Here is a breakdown of what that means:

What is the Mortgage Stress Test?

No, the mortgage stress test isn’t a physical drill you have pass in order to be eligible for a mortgage here in Canada.

A few years ago, the government introduced the stress test to make sure people could afford their mortgage payments if rates increased upon their renewal x number of years down the road.

Currently when applying for a mortgage, you have to qualify using an interest rate of 4.79% or your actual interest rate + 2%, whichever is higher. These new proposed changes will increase that qualifying rate to 5.25%…but only for some people.

Who Does This Affect?

It only affects you if you are looking to refinance, buy a home over $1,000,000, buy a non-owner occupied single unit rental property, or if looking for a mortgage amortization over 25 years.

It does not affect you if you are buying a home with less than a 20% down payment or looking to switch your mortgage to another lender if your home value is less than $1,000,000, with an amortization of 25 years or less. You will still qualify using a 4.79% interest rate.

What Does This Actually Mean?

It means the amount of mortgage money you may qualify for will be reduced by 4%-5%.  For example, if your maximum qualification is a $800,000 purchase using a 30 year amortization period, this will be reduced to approximately $760,000.

Will this slow down the housing market? Only time will tell.

If you think this may impact you, I suggest getting in touch with our team and we’ll review your situation to be prepared for any potential changes in qualification. We’re here to help!

Inderraj Saini

About Inderraj Saini

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