What is the mortgage stress test?
As of January 1, 2018 Canadians getting, renewing or refinancing a mortgage will have to undergo a stress test. This shows the bank that you would still be financially okay if there was a substantial increase in the interest rate on your mortgage.
The stress test is a federal guideline and banks are required to use a minimum qualifying rate equal to the greater of the Bank of Canada’s five-year benchmark rate, which is currently at around 5.34%. What this means for some is that they can’t afford to purchase a new home or have to look at homes that are less than their estimated budget. It is also why the condo and townhouse market is on the rise.
If you are in the market for a new home, ask yourself if you can afford to pay around $600 a month for every $100,000 you borrow. That is a great way to determine if you can pass the stress test and what your budget should be when you start looking for a home.
One thing that the stress test may do is force housing prices down in the GTA, which have been on the rise for the past 5 years. This is a positive thing for new home buyers that have saved up enough money for a nice down payment or for those looking to downsize. For people upgrading it is definitely something to take into consideration because in the end, you may not be able to upgrade at all.
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