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Alberta Takes on Feds Over the Mortgage Stress Test

March 12, 2021
4 mins

Alberta’s provincial government has been lobbying for changes to the federal mortgage stress test for the past year and a half, to no avail.

According to new documents obtained by CBC News, Alberta Finance Minister Travis Toews sent a letter in 2019 to then federal Finance Minister Bill Morneau expressing the province’s concerns about the stress test and its impact on Albertan homebuyers.

"We have significant concerns about the inflexible B-20 mortgage stress-testing rules, which are creating an unnecessary barrier to homeownership in Alberta," Toews wrote. The letter was obtained by CBC News through an access to information request.

Toews noted that default rates have been low in the province, despite economic hardship in recent years, and had asked the government to “immediately” reform the stress test to make it more appropriate to the province’s housing market.

At the time that the stress test was introduced, TD had estimated it would reduce buyers’ borrowing power by as much as 20%.

Stress Test Refresher: The federal stress test required borrowers to prove to a lender that they can afford payments at a higher interest rate. Its supposed purpose was to ensure people are financially capable of handling potentially higher rates in the future. But some accuse regulators of imposing it mainly to slow the housing market.

There are currently two different stress tests:

  • Default-insured mortgages (those with less than 20% down payments) are stress-tested on the greater of the mortgage contract rate or the Bank of Canada's 5-year fixed posted rate (a.k.a. benchmark rate).
  • Uninsured mortgages (those with more than a 20% down payment) are stress-tested on the higher of the contract rate plus 200 bps, or the benchmark rate, which is currently 4.79%.

In November 2019, soon after writing his letter to the Department of Finance, Toews told a Lethbridge media outlet that he doesn’t believe the stress test is being applied appropriately in Alberta.

“We believe that that measure was made for overheated housing economies in Toronto and Vancouver,” he said. “That is one of the key… items on my agenda. I’m hoping to work with other provinces to elevate that one to the national stage. Again, I’ve made my point clear that we don’t believe it should apply in Alberta.”

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Planned stress-test changes still on hold

Early last year, the Department of Finance announced improvements to Canada’s qualifying rate, which is a key component in stress test calculations.

Default-insured borrowers were to qualify on a lower monthly payment — that is, a payment based on the weekly median 5-year fixed insured mortgage rate plus 2%. At the time, it was calculated that the change would lower the qualifying rate about 30 bps, making it easier to get a mortgage.

Soon after the announcement, however, the changes were shelved due to the pandemic. The Department of Finance has not provided any recent clarity as to when the changes will come into effect.


The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

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