“The stress test was introduced to provide a margin of safety and ensure that borrowers can make their payments if circumstances change – such as if interest rates rise or their income changes,” says Crawford.
In 2018, the stress test was expanded to incorporate buyers with a down payment of greater than 20% (those with uninsured mortgages). Since then, all Canadian homebuyers applying through a government-regulated lender – in addition to those refinancing their current mortgage – must pass the test.
Has the stress check modified over time?
Yes. The stress test has evolved in several ways, including through changes to the qualifying rate itself and the best way during which the speed is applied.
Until June 2021, the stress test rate was set at either 2% above the contractual rate of interest that buyers had negotiated with their lender or the Bank of Canada (BoC) published five-year rate of interest, whichever was higher. However, when the BoC cut rates of interest at the beginning of the COVID-19 pandemic, there have been concerns that the five-year benchmark rate was too low to adequately protect borrowers from future defaults on their mortgages.
So, those Office of the Superintendent of Financial Institutions (OSFI), a federal agency that acts as Canada’s banking regulator, has decided to decouple the minimum stress test rate from central bank rates of interest and as a substitute use a set minimum rate that’s reviewed annually.
Another change concerns mortgage renewals. Previously, if borrowers desired to transfer their mortgage to a different government-regulated lender upon renewal, that they had to “pass” the stress test again as a brand new applicant. However, at the top of 2023, the federal government eliminated this requirement for insured or high-interest mortgages under the Canadian Mortgage Charter. And starting November 21, 2024, borrowers with uninsured mortgages will even give you the chance to change lenders at renewal and qualify based on market rates of interest as a substitute of the stress test rate.
“This is a very good thing,” says Crawford. “Borrowers can qualify at the contract rate, meaning they can shop around at renewal rather than simply accepting what their current lender is offering.”
However, it will be significant to notice that borrowers who refinance their mortgage – that’s, they need to alter the terms of their mortgage agreement, for instance to increase the repayment period or borrow additional money against the equity in the house – must pass the stress test again at either your current lender or a brand new one.
