[2021] New Mortgage Stress Test Rules

Canada's mortgage 'stress test' is getting tougher. As of June 1, 2021, the qualifying rate is moving from 4.79% to 5.25%.

We can help you de-stress. Our expert, friendly brokers are here to answer your questions, and guide you to your best rate and right mortgage fit.

What is the mortgage stress test?

Thinking of purchasing, renewing or refinancing your home? Regulated lenders determine how much you can borrow using a rate set by the federal government. This qualifying rate is set higher than rates being offered by lenders, and acts as a buffer to help ensure you can still pay your mortgage if rates go up. On June 1, the rate set by the federal government will jump nearly 1/2 a percent to 5.25%. This benchmark qualifying rate is reviewed annually in December, so it may change again by the end of the year.

Why a stress test?

The official stated purpose for the stress test is to protect consumers and financial institutions from trouble when mortgage rates rise in future.

“The minimum qualifying rate adds a margin of safety that ensures borrowers will have the ability to make mortgage payments in the event of change in circumstances, such as the reduction of income or a rise in mortgage interest rates. As mortgages are one of the largest exposures that most banks carry, ensuring that borrowers are able to repay their loans strongly contributes to the continued safety and soundness of Canada’s financial system.”

- Office of the Superintendent of Financial Institutions (OSFI)

Right now, housing markets across Canada, highlighted by Vancouver and Toronto, are problematically hot. The pandemic has lowered mortgage rates to historic lows, resulting in a big chunk of discretionary consumer spending likely to be slated for housing. And, with Canadians hanging out at home so much more, many feel it's the right time to either buy their first home or move into something bigger or more comfortable. As a result, home prices have skyrocketed. This qualifying-rate program offers the government a convenient mechanism to turn down the heat.

How does it impact you?

In a nutshell, home buyers will now likely get approved for less home than they would have prior to June 1, 2021. Alone, this rate change wouldn’t have had a huge impact (around 4% - 5% reduction in mortgage affordability), but combined with rising prices — Canadians on the cusp of being able to afford a certain home may find that some desirable options disappear.

Are you a first-time home buyer? We can help.

There's another way to qualify your rate.

Update for May 2022. Most fixed mortgage rates have now increased beyond the stress-test 5.25% rate ceiling.

In that case, a lender will use whichever is higher — either a rate of 5.25% OR your actual rate plus 2.0% to qualify your mortgage loan amount. So for today's higher fixed rates on 2 to 5-year mortgage terms, the 5.25% ceiling is obsolete. (Though it still applies for lower variable rates and 1-year fixed rates, for the time being.)

Fact: The Mortgage Stress Test was first initiated in 2016, and at the time, only applied to insured mortgages (less than 20% down payment).

Here are some quick comparison scenarios (using the 5.25% rate).

Our chart gives you an idea of the change in qualification numbers, plus our affordability calculator below has been updated with the 5.25% qualifying rate, so that you can see how your numbers may line up.

Please note: These scenarios and those produced by our calculator are highly simplified, and are a merely a snapshot of the June 1, 2021 stress test regulations. These examples will quickly become out of date.

Always consult an expert broker for tailored advice. We're here to help answer any questions and provide your best rate. Click the chat bubble, give us a call, or drop by a store location today.

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