The mortgage stress test requires banks to check that a borrower can still make their payment at a rate that’s higher than they actually pay. Here’s how it works. … This means that your income needs to be high enough, and your existing debt low enough, to be able to pay down your mortgage at that higher rate
The test now applies to all mortgages. The mortgage stress test requires banks to check that a borrower can still make their payment at a rate that’s higher than they actually pay.
Here’s how it works. When you apply for a mortgage, you’ll be offered a contracted rate – hopefully, this will be as low as possible! However, your bank needs to check you’ll be able to pay back your mortgage, even if your mortgage rate rises during your mortgage term.
To do this, they check your ability to make your payments based on The Bank of Canada qualifying rate, which is based on the mode average of posted 5-year fixed rates from Canada’s big banks. The Bank of Canada qualifying rate was 4.79%, but in June 2021, the minimum qualifying rate increased to 5.25%.
This means that your income needs to be high enough, and your existing debt low enough, to be able to pay down your mortgage at that higher rate. Generally, this will result in you being able to borrow a smaller amount of money.
