Should you stress about the Stress Test?

October 25, 2016 | Posted by: Andrea Cass

Should you stress about the Stress Test?


The High-Ratio Rule


There has been a long-time rule that you must

have “high-ratio mortgage insurance” (CMHC) if you have

less than 20% down payment. This insurance is

there to protect the lender, and the premium is

almost always added to your mortgage amount.

What’s changed? If you require an insured

mortgage, you must qualify for your mortgage

using the Bank of Canada qualifying rate

(currently 4.64%) regardless of what your

actual mortgage rate will be.

That means that – although I can find you a

much better mortgage rate – you’d still need

to show you can handle the mortgage using

the qualifying rate. This financial “stress test”

was already applicable for fixed and variable

mortgages with terms of 1 to 4 years. Now, it

also applies to fixed-rate mortgages of 5 years

or longer.

Why the new rule? The government wants to be

sure that borrowers can withstand any increases

in mortgage rates when their mortgages come

up for renewal.

Will my payments be higher? No. Your

payments will still be based on your much

lower actual mortgage contract rate. Keep in

mind that mortgage rates are expected to stay

at record lows into 2020. So this new rule isn’t

costing you more. The potential change will be

in how much mortgage you will qualify for: up to

20% less. You may need to plan on purchasing

a less expensive home, or save up a larger

downpayment, or ensure you eliminate all or

most of your other debts.


Although there are definite regional variations,

the Canadian housing market is strong. A good

part of the reason for that strength is that we have

had stringent mortgage requirements. Mortgage

defaults in Canada continue to be very low: in

spite of the ups and downs of the economy.


The new rules are aimed at ensuring

home ownership continues to be a solid,

long-term investment. Give me a call:

I’ll help ensure you make the most of it!

The High-Ratio Rule



Back to Main Blog Page

Share This Page On: