For all mortgage applicants, it is required to pass the mortgage stress test – even when they are making a 20% down payment. You need to prove that you will be able to afford the benchmark mortgage rate. In order to find out how the stress test affects you, you better use the government of Canada’s online mortgage stress test calculator. Calculating your home affordability manually won’t take much of your time.
Important 5 W’s of the Mortgage Stress Test
What is the Stress Test?
When applying for a mortgage, you need to prove to the lender that you will be able to afford your mortgage even if the rates go up.
When did the Stress Test begin?
The latest version of Guideline B-20 (the official name of the stress test) took effect on January 1, 2018. For this version, all borrowers are required to qualify at a higher rate. But before 2018, only those borrowers who had less than 20% down had to pass the stress test.
Why is there a Stress Test?
Canadians are among the most indebted people in the world, and until recently, our interest rates have been among the lowest for developed nations. That means we had a lot of cheap debt, so it was easy to pay for. The government was concerned that an interest rate increase would catch most people off-guard, and made the stress test to prove they could afford higher interest rates.
Who is responsible for the Stress Test?
The Canadian government always knew that the interest rates would never stay low forever and after rising, people with lots of debt would land in trouble. The only institutions that abide by the stress test are federally-regulated financial institutions including banks and monoline lenders.
Where does the Stress Test Apply?
As a federal regulation, the stress test applies in all provinces in territories.
If you want to learn more about the mortgage stress test, visit the official website of RateShop.ca.
