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Lowered mortgage stress test rate: What Can Borrowers Expect?



The housing market of Canada is currently evolving due to the COVID-19 pandemic. The pandemic also brings good news for the prospective home buyers as the stress test rate for Canada's mortgage borrowers has just been lowered for a third time since Covid-19 outbreak. To put it simply the bar for testing of finances of mortgage borrowers has been lowered, thus making it easier for you to be eligible for a mortgage and thus a step closer to your home.


The benchmark five-year mortgage rate, used to assess borrowers, was 5.04 % in March; it went down to 4.94 % in May, and is now at 4.79 % as per the new change. In actual terms it means that the qualifying rate will increase the affordability of home buyers by 1.5%. The ‘stress test’ came into force in the year 2017, and was devised to ensure borrowers have the power to pay off their loans in the event of the rates rising in the future. But what does this further lowering of stress test rate really have in store for you as a borrower?


Experts are seeing this rate as no major change as the underlying rates have been going down for a while now. So if you were earlier qualifying for a mortgage earlier, nothing changes for you now. If you were not qualifying for a mortgage, then too nothing changes for you with the revision in the rate.


The drop in the stress test rate will qualify you for the mortgage if you were 'barely there' i.e. if you were, till now, not qualifying for the same due to a narrow margin. Those ‘almost qualifying’ will now qualify for the mortgage and are among the set of people who will benefit from this change of the newly lowered rate. Those looking to borrow can now borrow ‘slightly more’ than earlier.


The newly lowered rate will also benefit first-time home buyers who were wishing to be in the housing market simply because changes in the rules were making it tough for them to qualify earlier. Till now, the qualifying rate had been going up and this downward slide is a gain for home-buyers because of the ongoing pandemic.


Though the government is in no hurry to revisit its policy, the industry leaders and experts are calling on the federal government to change the way the stress test rate is being calculated currently. With the housing market opening for business again, now is a good time to implement a newer way of calculating the stress test. All hopes are pinned on the government revisiting the calculation of the stress test so as to enable more people to qualify.


We suggest new or first time home buyers take a consultation session with mortgage brokers. Mortgage brokers can run a affordability calculation test at the new stress test rate and tell the home buyers how much difference has it made to their actual buying/borrowing power. If you are in doubt about the new rate or want to calculate your qualification, we are happy to help.

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