What is the mortgage stress test for Barrhaven home buyers?
The mortgage stress test is a federal requirement that borrowers show they can afford payments at a qualifying interest rate, generally higher than the rate a lender actually offers. Federally regulated lenders such as banks require it, and some non-federally-regulated lenders apply it too. Banks use the higher of 5.25% or the negotiated rate plus 2%, for both insured and uninsured mortgages.
Who has to pass it
Federally regulated entities such as banks require borrowers to pass a stress test to get a mortgage. Lenders that are not federally regulated may also require it, so the rule is not limited to the big banks.
How the qualifying rate is set
Borrowers must show they can afford payments at a qualifying interest rate, generally higher than the contractual mortgage rate they are actually being offered. Banks use the higher of 5.25% or the negotiated rate plus 2%, and this applies to both insured and uninsured mortgages.
Where it can come up beyond a purchase
The test can also apply when refinancing an existing mortgage or taking out a home equity line of credit, not only when buying a home. This Barrhaven page is general information only; readers should seek advice applicable to their circumstances from a lender, mortgage broker, or other qualified professional.
Source: Financial Consumer Agency of Canada, Preparing to get a mortgage