Mortgage Stress Test
Find Out How The New Mortgage Stress Test Will Affect You And How To Get Approved!
Purchasing a house is one of the most important decisions you’ll ever make. It’s also a major financial commitment. Before being approved to take out a mortgage, you must pass the mortgage stress test. In June 2021, the government increased the minimal requirement for the mortgage stress test. The increased mortgage stress test has made qualifying for a home more difficult, not to mention lowering their buying power. The new stress test standards have also made refinancing or renewing existing loans more difficult for current homeowners. Knowing what to anticipate from the mortgage stress test will help you better prepare to qualify for a mortgage and raise your buying power.
What Is The Mortgage Stress Test?
The Canadian government, through the Minister of Finance and the Office of the Superintendent of Financial Institutions (OSFI), established a qualifying benchmark rate called the stress test to mitigate mortgage default risk and any other risks linked to the fluctuating interest rates of the housing market. The mortgage stress test is in place to ensure that you do not default on your loan if interest rates rise significantly.
The interest rate the bank will offer you is based on your credit score when you apply for a mortgage. However, under the stress test, this isn’t the interest rate used to evaluate your mortgage eligibility. Instead, use the rates outlined in the mortgage stress test regulations to guarantee that if/when interest rates rise, you’ll be able to meet your obligations.
What Are The New Mortgage Stress Test Rules, and How Do They Work?
The rate for the mortgage stress test was previously set at 4.79%; but in June 2021, it was increased to 5.25% or your negotiated rate plus 2 percent. The recent mortgage stress test changes now apply to all mortgages, including both insured and uninsured ones. If you can qualify for a mortgage rate of 3.25 percent or less, the Bank of Canada qualifying rate of 5.25 percent will be used in the stress test. Your bank, on the other hand, will utilize the greater interest rate that is your mortgage contract interest rate plus 2 if you qualify for a monthly payment higher than 3.25%.
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How Will The New Mortgage Stress Test Rules Affect Refinancing?
Before you refinance, be sure your income is sufficient and that your debt-to-income ratio is low enough to meet the new mortgage stress test rates. If your income isn’t high enough to meet the new mortgage stress test rates after you refinance, you might not be able to do so.If you are unable to refinance your mortgage at a lower rate, the new mortgage stress test rules may end up costing you a lot in interest over time.
How Will The New Mortgage Stress Test Rules Affect Mortgage Renewal?
Fortunately, when you renew your mortgage with your original lender, the stress test does not apply. However, if you change lenders while your mortgage is being renewed, you will need to pass the stress test. This makes it tough to comparison-shop for a cheaper rate using a different lender and limits your negotiating strength with your present lender in order to secure a better rate.
Exemptions To The Mortgage Stress Test Rule
The mortgage stress test has two exemptions to its rule. The following are three instances where the mortgage stress test restriction does not apply:
1. Renewals of mortgages
If you renew your mortgage with the same financial institution or lender, the stress test rules will not apply to you.
2. Credit unions
The stress test rules only apply to federally regulated financial institutions. Some credit unions may consider applying the same stress test as a safeguard against loan default risks. As a result, it’s essential to check with your lender before submitting an application to see if they utilize the mortgage stress test or not, and prepare your finances ahead of time so you can pass the stress test.
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The Bottom Line
The new mortgage stress test rules will have a significant impact on the amount you can afford and your negotiating power when it comes to purchasing, refinancing or renewing your mortgage. Although it may be more difficult with the new mortgage stress test rules it is not impossible to get approval. There’s no reason to give up on your goal of owning a house. Maintain a low debt-to-income ratio and save for a down payment, and you’ll be able to get the keys to your new home in no time.
Discover How Much You Could Save On Your Mortgage. Get A Quote Right Now!
We can assist you in getting your new mortgage stress test approved. The last thing we want to see is our clients struggle with payments or be forced to sell before they are ready, and the best way to avoid this scenario is to obtain approval on your own terms right now. We’ll work with you to tailor your loan so that you can save as much money as possible. Apply Now for the loan that suits your needs!
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