This post is an ongoing work in progress because the government keeps tweaking the rules to the mortgage stress test. The most recent change took place on June 1st, 2021.
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 June 1st, 2021 stress test rate is now 2% above the rate your lender is offering you or 5.25%, whichever is higher.
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.