What is the Mortgage Stress Test?

February 7, 2017 | Posted by: Dawn Stephanishin

The Stress test is simply a Mortgage Calculation to ensure that you can afford your Mortgage Payments should Interest Rates start to rise. The Test is using an interest rate that
is much higher than today’s record low rates. Your actual Mortgage Payment will be lower and based upon the rate and term that you choose for your Mortgage. You do not have to worry about the stress test as it is a part of the normal Mortgage Application Process. Here is a more detailed explanation:


THE HIGH-RATIO RULE

There has been a long-time rule that you must have “high-ratio mortgage insurance” if you have less than 20% down payment. This insurance is there to protect the lender, and the premium is almost always added to your mortgage amount.
What’s changed? If you require an insured mortgage, you must qualify for your mortgage using the Bank of Canada qualifying rate (currently 4.64%) regardless of what your actual mortgage rate will be.

That means that – although I can fi nd you a much better mortgage rate – you’d still need to show you can handle the mortgage using the qualifying rate. This fi nancial “stress test” is applied to Mortgage Applicants using NHA Insurance.

Why the new rule? The government wants to be sure that borrowers can withstand any increases in mortgage rates when their mortgages come up for renewal

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