LeverageMortgage RenewalStress Test

A New Stress Test Is Coming!

By April 16, 2021 No Comments

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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