News & Resources

What You Need to Know About the New Mortgage Stress Test

April 8, 2021
5 mins
A man and woman look worried at the computer

It could become more challenging for people to get a mortgage.

Come June 1, Canada’s banking regulator will use a new method of qualifying mortgage applicants. The changes apply to all mortgages from federally regulated lenders that do not have default insurance (i.e., most mortgages).

If you’ve got questions about the changes, here are some answers:

How will the uninsured mortgage stress test change?

If OSFI’s proposed changes are adopted, borrowers applying for an uninsured mortgage—generally those with more than 20% equity—would have to prove they can afford mortgage payments based on a rate that’s the greater of the mortgage contractual rate plus two percentage points or 5.25%.

That 5.25% minimum qualifying rate is 0.46 percentage points higher than today’s floor of 4.79%.

When would the new stress test take effect?

June 1, 2021.

How many people will this affect?

We estimate less than 1 in 10 uninsured mortgage borrowers.

How will these stress test changes impact your mortgage?

RATESDOTCA estimates the higher minimum qualifying rate could potentially cut borrowers’ buying power by about 4%. That’s assuming rates don’t change by the time the new rule is implemented.

4% is no reason for panic — unless you’re a borrower who can barely qualify for a mortgage today due to an above-average debt load.

To put this another way, someone who could qualify for a maximum $500,000 mortgage today would have that reduced to roughly $479,000 with the new rules in place.

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Find a mortgage broker

Engaging a mortgage broker before renewing can help you make a better decision. Mortgage brokers are an excellent source of information for deals specific to your area, contract terms, and their services require no out-of-pocket fees if you are well qualified.

Here at RATESDOTCA, we compare rates from the best Canadian mortgage brokers, major banks and dozens of smaller competitors.

Will there be changes to the stress test for default-insured mortgages?

The stress test applying to insured mortgages falls under the jurisdiction of the Department of Finance. The DoF has not announced any changes to the insured mortgage stress test. In a statement released today, the Minister of Finance said, “We will continue to monitor housing market conditions across the country. To inform potential steps the government may take, we will closely examine the results of the consultation announced by the Superintendent of Financial Institutions.” So it’s very possible that the rules for insured mortgages could change at a later date.

How often will the stress test be updated?

OSFI plans to “revisit the calibration of the qualifying rate at least once a year (in December) to ensure it remains appropriate” given market risks at the time.

Is there a workaround for borrowers who can’t pass it?

Yes. If you can’t get approved at a bank, you may be able to get approved with a credit union or non-prime lender that doesn’t use the federal stress test. Be prepared to pay a higher interest rate for this privilege.

RATESDOTCA Team

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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