Mortgage ‘stress test’ relaxes for Canadian homebuyers

Effective April 6, the federal government will once again change how it calculates qualifying rates for mortgages (widely known as the mortgage “stress test”) that is intended to give Canadians more home buying power.

Under the current mortgage rules, a borrower must have their financial capability tested at the 5.19% rate, or be refused a loan.

But under the new rules, a borrower would be tested at 4.89 per cent — a combination of their actual mortgage rate, plus two per cent. That’s a difference of 30 basis points and though small it can add up to thousands more in purchasing power.

CBC News

The website reckons that a buyer with an annual income of $100,000, a 10 per cent down payment, and a 2.89 per cent mortgage rate could now buy a home valued at $526,632 — that’s more than $15,000 more purchasing power than under the current rules.

The intent of the federally regulated stress test rate for mortgages was to lessen the risk that borrowers won’t be able to pay their mortgage if the economy tanks or for whatever reason they lose income. However, it has been based on the big bank mortgage rates, not smaller lenders such as credit unions which some said was unfair to consumers.

CREA’s response:

“REALTORS® have advocated for changes to the stress test on behalf of potential homeowners who have been sidelined, borrowers who have moved away from the regulated market to less-regulated options, and real estate markets across the country in need of relief,” said Jason Stephen, President of The Canadian Real Estate Association.

In response to the impacts of the stress test, CREA has recommended:

  • reviewing the mortgage stress test to ensure the realities of local real estate markets are taken into consideration; and
  • allowing existing mortgage holders to be exempted from the stress test at the time of renewal.

“We are pleased the government has taken steps to address some of these issues in Canadian housing markets,” said Stephen.

BCREA’s response:

BCREA Chief Economist Brendon Ogmundson says the change to the stress test for insured mortgages, “is a move in the right direction to more accurately align qualifying rates with mortgages rates being offered in the market. For the last year, the Bank of Canada’s benchmark posted rate has been much higher than 2 per cent over contract rates, leading to overly onerous mortgage qualifications.”

“We hope this signals a similar change is coming for uninsured mortgages,” Ogmundson adds.

The stress test has been keeping qualified buyers out of homes they can afford. That is why in October 2019, BCREA called on the government to revisit the impact of the B-20 stress test and:

  • reinstate 30-year amortizations for insured mortgages to make monthly payments more manageable,
  • exclude the stress test for mortgage transfers and switches, so borrowers can shop for competitive terms,
  • make the stress test more flexible to reflect the level of risk posed by the terms and conditions of a particular mortgage.

Read BCREA’s complete recommendations on improving housing affordability at: