What is the "Mortgage Stress Test" and what does it mean for you?

What is a Stress Test (B-20)?

It is a system that was implemented to test homebuyers ability to afford their property if interest rates were to go up. This test existed for high-ratiomortgages already (someone who is borrowing more than 80%), but this test now applies to all mortgages in Canada.

The Federal Government implemented this test as they are concerned with Canada's level of debt. With the hindsight of the housing crash in the US in 2008, their goal is to ensure that the Canadian economy stays strong and that homeowners will be able to afford their homes.

How does the Stress Test work?

Potential homebuyers (and refinancers) will be tested against the greater of the following two:

The Bank of Canada’s five-year rate - currently at 5.34% (as of June 2018)

The rate offered by your lender plus two percent

For example, if your lender’s rate is 3.4% you would be tested against a rate of 5.4% as it is the higher of the two.

What does this mean for you?

Early estimatesfrom various financial institutions statethat 20% of homebuyers willbe affected by these tests. Further, those affectedwill have to look for homes that are lower priced than expected.

These stress tests could lower purchasing power for those affected by 10-20%. So if someone could afford a house worth $800,000 in 2017, their affordability after this test could drop to $640,000.

Will these stress tests affect you?

Get pre-approved now through our simple Homewise signup and our team will do the work for you to find out exactly whatlenders will approve you for.

How can youafford more?

If you were originally buying alone, you can look to buy with a co-applicant. This is someone who would own the home as well as you. Their income and financial information will be added to your application, helping to increase the value of the home you can afford.