Canadians getting, renewing or refinancing a mortgage are forced to undergo a stress test. They must prove they can afford their payments if interest rates rise. The stress test uses a rate substantially higher than your actual mortgage rate. Federal guidelines require financial institutions to qualify applications using a minimum qualifying rate equal to the greater of the Bank of Canada’s five-year benchmark rate (currently 5.34%) or their contractual rate, plus 2%.
Consequences of the Stress Test
This means you may not be able to borrow as much as you would have. It means a less expensive house or a house in another part of the city. This is problematic once you factor in your lifestyle and place of employment.
If you’re renewing your mortgage, you may be forced to stay with your current lender and avoid the stress test. It puts you at your bank’s mercy and you lose your power of negotiation. It allows you to side-step the stress test but it also means you can’t shop around for a better mortgage.
And if you’re hoping to refinance, you may not be able to boost your loan by as much as you’d like – if at all. Having to qualifying at the higher rate simply erodes the maximum amount you can borrow.
There might not be much you can do to change the math in your favour. However, you should know what you’re up against before you make decisions. Above all, sit down with a mortgage broker or meet up with a real estate agent. Jennifer Rossides will discuss with you your personal financial and lifestyle situation. Jennifer will provide details on various lenders, discuss pros and cons of renting vs buying and point out any investment opportunities. Ask Jennifer Rossides for her references and recommendations. Please give me a call at 613-867-8076 or send an email at firstname.lastname@example.org Start today to find a Smart Mortgage Solution that’s right for you.