The Mortgage Stress Test with the Canadian Mortgage App
Canada’s banking regular OSFI (Office of the Superintendent of Financial Institutions) confirmed in December 2022 that it would leave the mortgage stress test unchanged. Let’s look at what that means and other changes coming down the pipeline.
The Mortgage Stress Test
If you have bought a home in recent years, you should know the mortgage stress test. It’s a test to keep Canadians from overextending themselves when buying a home.
The stress test was introduced several years ago. Under the stress test, you must qualify at the higher mortgage stress test rate (currently 5.25%) or your mortgage rate plus 2%.
Each December, OSFI decides if it will change the stress test rate. To no one’s surprise, OSFI chose to leave the stress test rate the same at 5.25%. However, this doesn’t mean much and here’s why.
Canadians are required to qualify at the greater stress test rate or their mortgage rate plus 2%. With the stress test rate being 5.25%, we would have to see mortgage rates below 3.25% for the stress test rate to come into play. We are nowhere close to that with fixed mortgage rates in the 4-5% range and variable in the 5-6% range. Therefore, keeping the stress test rate the same is relatively meaningless.
It could only impact Canadians if Canada’s banking regularly raised the stress test rate enough to qualify at a higher rate, which it didn’t.
B-20 Consultation Process on the Way
OSFI announced that it’s doing a review of B-20. If you’re unfamiliar with B-20, those guidelines spell out the practices and procedures for underwriting mortgages in Canada.
OSFI will reach out to all stakeholders for feedback on any changes it would like to make. One of those changes that industry groups like Mortgage Professionals Canada have been pushing is dropping the stress test for those switching lenders. This makes a lot of sense.
Why should you be required to pass the mortgage stress test if you aren’t borrowing any new funds? You don’t need to when you stay with your current lender. Making borrowers pass the stress test when switching lenders is tying borrowers to their existing lender when they may be able to find more competitive mortgage options elsewhere.
Will this change happen? Only time will tell.
How the Canadian Mortgage App Can Help
The Canadian Mortgage App makes calculating the mortgage stress test super easy.
With the purchase calculator, you don’t have to worry about anything. You can select the mortgage option and rate, and the Canadian Mortgage App will calculate the stress test. You don’t have to worry about the more significant stress test rate or your mortgage rate plus 2%. The app does it for you. It doesn’t get any easier than that!
What are you waiting for? Download the Canadian Mortgage App today to try it out.