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New mortgage stress test now in effect

Thursday, June 3, 2021   /   by Hans Suhr

New mortgage stress test now in effect

New mortgage stress test rules are now in effect as of June 1 2021. Here is what you need to know about the changes. 


The new rules were announced by the banking regulator back in May as a response to help cool the market. 


The new mortgage stress tests will affect Canadian homebuyers applying for or renewing a mortgage.


Ottawa raised the level of the "stress test" for mortgages, at 5.25 per cent - or two full percentage points above the borrowers mortgage rate, whichever is higher. This is about an increase of half a percentage point from where it was previously. 


This also includes qualifying for uninsured mortgages not needing CMHC - where the downpayment is more than 20 per cent or more. These mortgages and renewals are either 2 percentage points above the contract rate, or 5.25 percent whichever is higher. 


Before June 1, any buyer whose down payment was 20 per cent of the purchase price or more had to show they could afford mortgage payments if the interest rate was two percentage points higher than what the bank is offering them or 4.79 per cent, whichever was higher.


The new tougher stress tests will reduce borrowers buying power by about 4-5 percent. 


When OSFI first implemented the mortgage stress test for uninsured mortgages in 2018, homebuyers saw their purchasing power reduced by about 20 per cent, so this new change is not nearly as drastic as we previously saw. 


Even though a higher payment is only theoretical, if the buyer would not be able to pay that extra percentage per month based on their income level, overall debt load and other factors, the lender can't loan them the money. Those buyers would then have to go find a less expensive home to pass the test. 


Do you have questions about the Central Vancouver Island market and these new changes? Connect with me and let’s chat!