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Hope for the best, plan for the worst. A mortgage stress test determines how much you can afford even in difficult circumstances, such as job loss or an interest rate spike. This additional measure of protection, tightened on January 1, 2018, helps protect home buyers from worst-case scenarios, especially if interest rates and home prices rise.
Under the new rules that came into effect on January 1, 2018, home buyers seeking either a high-ratio or uninsured mortgage must qualify at a higher rate than they actually pay. These guidelines were mandated from the Department of Finance in November 2016 for high ratio stress testing, and again in 2018 by the Office of the Superintendent of Financial Institutions (OSFI) for conventional mortgage loans. As a result, lenders are required by Canadian law to perform a stress test as a means of verifying that borrowers are financially capable of paying it off. The stress test is calculated based on the Bank of Canada qualifying rate, or the contracted rate plus two percentage points.
For example, a mortgage with a 20% down payment would be subject to qualify at an interest rate of 5.54% as opposed to 3.54%. For high ratio mortgages with a 5% down payment, the stress test would come to 5.14% as opposed to 3.24 actual rate%.
Fear not if you don’t pass the stress test however, as there may be alternative options in the form of more flexible lending not based on the bank and insurer guidelines. By working with a certified broker, these options are more easily made available to you.
How much home can you afford under the new stress test rules? Fill out our form above and learn what you qualify for. No matter the picture, We’ll help you weigh your options, whether that’s saving for a larger down payment, restructuring your current debt or choosing a more affordable home that gives you more financial flexibility.
We will assess your needs and expectations to connect you with the right mortgage. We’ll help you navigate the process from pre-qualification through your closing day and beyond. From determining affordability to negotiating with lenders, we’re by your side at every step.
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As one of the fastest growing brokerages in the region, we leverage a wide network of lenders to connect you with a mortgage that works. We are dedicated to providing our clients with a trusted partner at every step of the mortgage process. We put our knowledge, experience, and passion for financial matters to work to connect you with the right mortgage solutions. Talk to us – you will be impressed.APPLY NOW