More Mortgage Stress Testing?


We are going to be experiencing another set of changes to the mortgage industry sometime in October of this year. In this blog post, I’ve outlined the 3 proposed changes that you will need to understand and some precautions you should take.

The proposed new rules contain a possible 3 changes.

  1. Implementation of a stress test for all uninsured mortgages. A mortgage does not need to be insured if there was a down payment of more than 20%. Under the current rules, insured mortgages, variable rates and fixed rate mortgages less than 5 years must be qualified at a higher rate. The higher rate of course is set against the Bank of Canada’s posted rate. The new rules propose that this will be replaced by a 200-basis-point buffer above the borrower’s contract rate.(Is there a better way to explain this that is simpler?) Essentially you will be qualified at a rate 2% higher than the rate you are actually paying. For example if you obtain a mortgage rate for a 5 year fixed at 3.49% you would be qualified at 5.49%… this means less mortgage money available to you.
  2. Another new requirement requires that loan-to-value measurements remain flexible and adjust for location conditions when used to qualify buyers.
  3. Prohibition of bundled mortgages. Bundled mortgages are used to get around regulatory requirements and around the 80% loan-to-value limit on uninsured mortgages.

It is predicted that the last two changes will only affect 1% of all mortgages in Canada. However, the stress testing will have a more far-reaching impact. Stress test requirements were first announced around this time last year. The last string of rules primarily affected First Time Home Buyers and anyone who was putting less than 20% down towards the purchase of a home. The new stress test rules will now affect anyone who is coming up to their renewal date and anyone that is wishing to refinance. You may find that you are no longer qualifying to borrow as much as you would have previously.

Current Mortgage Rules

Rate Amortization Annual Income Borrowing Amount Existing Mortgage Accessible Equity
3.49% 25 years $95,000 $550,000 $320,000 550k-320k = 180k

Proposed Changes:

Rate Amortization Annual Income Borrowing Amount Existing Mortgage Accessible Equity
5.49% 25 years $95,000 $425,000 $320,000 425k-320k = 105k

In this scenario, the current mortgage rules would allow you to access $180,000 in equity in your home to do such things as consolidation, renovation etc. The proposed changes would only allow you to access $105,000. That’s a difference of $75,000. As the dates of these changes remain unknown, I am advising all my clients to seek out renewals sooner than later. You may be able to qualify for more now than if you wait until these rules go into effect.

Herjit Driver


More Mortgage Stress Testing?