Despite calls to relax the mortgage stress test, the government has decided to keep it in place. Here’s why.

It may not have come as a surprise to many, but the Office of the Superintendent of Financial Institutions (OSFI) recently announced it would be leaving the mortgage stress test unchanged moving into 2023. This means that those looking for a mortgage will still have to qualify at the higher of 5.25% or their contract rate plus two percentage points. But why is this the case? Let’s take a closer look at why Canada’s mortgage stress test remains unchanged and what it means for potential borrowers.

Understanding Canada’s Mortgage Stress Test

 Canada’s mortgage stress test is designed to ensure that prospective borrowers are able to handle an increase in their monthly payments should interest rates rise in the future. The stress test also helps protect lenders by ensuring that borrowers can repay their mortgage even if they experience an unforeseen change in financial circumstances like job loss or illness. The stress test applies to all mortgages insured by the Canadian Mortgage and Housing Corporation (CMHC).

In addition, while lenders typically use your credit score when determining whether or not you qualify for a mortgage, they don’t use it when conducting a stress test assessment. Instead, lenders must use either the Bank of Canada Qualifying Rate or your contract rate plus 2%. This is why OSFI chose to leave the qualifying rate unchanged moving into 2023; this helps protect lenders from potential losses due to borrower defaults and ensures that borrowers can afford their mortgage payments should interest rates rise in the future.

Impact on Borrowers

 The main impact of Canada’s mortgage stress test on borrowers is that it could limit access to certain types of mortgages for some individuals who might otherwise qualify for them under normal credit scoring requirements. For example, individuals with lower incomes may find themselves unable to secure a mortgage if they don’t meet the qualifying rate set by OSFI even though their credit score might be high enough. Additionally, while first-time home buyers may be exempt from this requirement due to recent changes made by OSFI, they will still need to prove their ability to make payments should interest rates rise in the future.

Click here for the CMHC buying calculator: -> https://www.cmhc-schl.gc.ca/en/consumers/home-buying/calculators

 Conclusion:

Ultimately, Canada’s mortgage stress test remains unchanged as part of OSFI’s efforts to ensure both lender and borrower protection in an ever-changing economic climate. While this may mean more restrictions on who can obtain certain types of mortgages, it also helps protect those same individuals from taking out loans they won’t be able to afford if interest rates rise significantly over time. By understanding why these changes have been made and how they impact potential borrowers, everyone can make informed decisions about taking out a loan during these uncertain times.

A Mortgage Tree broker can help you understand the different options and find the one that’s best for your situation.

Finally, remember that a mortgage is a big financial commitment. Make sure you’re comfortable with the monthly payments before you sign on the dotted line.

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Sincerely

The Mortgage Tree Team – “Your Key to Home Ownership”

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