New Mortgage Rules

Is the mortgage stress test still a thing in 2023? Yes it is, with much higher rates making it even harder to qualify for a mortgage. This is a post that I regularly update because the government keeps tweaking the rules on mortgage financing.

We first heard about the stress test back in January 2018 along with several smaller changes to Canada’s mortgage rules. Ever increasing house prices and high debt levels were becoming a concern and the stress test was seen as a way to protect financial institutions and moderate price growth at the same time.

The stress test forces buyers to qualify for their mortgage at a higher interest rate than what they will actually pay when they purchase. The rules require you to qualify at either 2% above the rate your lender is offering you or 5.25%, whichever is higher. The rules have remained unchanged since June of 2021.

The current January 2023 average offered by the big banks for 5 year fixed rate mortgages is 6.49%, making the average stress test rate 8.49%. But remember, these are the posted rates. Cheaper money can be found if you shop around.

In any event being forced to qualify at the higher stress test rate causes the principal portion of your monthly mortgage payment to shrink, lowering the maximum amount you’ll be allowed to borrow for your mortgage. But the rate you’ll actually pay once you buy is the rate you are offered by your lender. Your monthly payments will be calculated from this lower rate, not the stress test rate. As a result your monthly payments will be smaller too.

The stress test has been quite unpopular so the federal government has rolled out several new changes to make it easier to buy a home. They are now offering a first time buyer’s credit of $5000, an increase in withdrawals from your RRSP to $35,000, and a new shared equity mortgage program from CMHC that rolled out in September of 2019. If you’re looking for mortgage info or help please reach out.

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