Stress Test Rate Drops From 5.34% to 5.19%

We have discussed many times in our blog regarding the stress test. What is the stress test? The stress test is a test that was imposed by the Canadian government in an effort to reduce the risk of defaulting on mortgage payments and cool the booming real estate market. It took a lot of buyers out of the market thereby reducing demand.

Mainly to achieve this, the Canadian Government checks to see if you can afford a higher rate mortgage than what you actually get. They check to see if you can handle higher payments before allowing you to have and benefit from the current loan rates. That is, they see if you can pass the stress test before you get the “contract rate”.

Well, that stress has just been relieved somewhat…

Instead of proving that you can afford a mortgage at 5.34%, now you only need to prove that you can afford a mortgage at 5.19%. This will make it a little easier for people to qualify for a mortgage. We believe that this reduced stress test will improve the current real estate market as many good people were being eliminated from the market and sometimes pushed towards private lending.

Why is this reduction good?

First of all, take the example of young first time homebuyers. They generally have saved up less than 20% down. Many of them have new jobs. They cannot afford a mortgage at 5.34%. We could get them a mortgage at 2.69% fixed for 5 years but that does not matter. The Government steps in and says no. They claim that they are doing this because the rates may go up and they won’t be able to afford the payments. But who is in charge of the rates? We say let the market regulate itself and stop interfering.

Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

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