From a financial perspective, a stress test is exactly what it sounds like. It’s intended to examine how going through financial hardship, such as losing your job or getting divorced, might influence your money. Simply put, the mortgage stress test pushes the prospective buyer to confront the startlingly high costs of homeownership. In order to qualify for a mortgage, all prospective Canadian homeowners must demonstrate that they can afford the minimum “qualifying rate” set by their lender.

In Effect June 1st

On June 1, 2021, the new mortgage stress regulations went into force. For uninsured mortgages, the qualifying rate is determined at the higher of two percentage points over the contract rate or 5.25 percent.

Early in May, the Office of the Superintendent of Financial Institutions (OSFI) made the modifications official in response to a market that had been too hot and was already beginning to cool. Market prices have started to stagnate. The average selling price for the Greater Toronto Area was $1,090,992 in April, down slightly from $1,097,655 the previous month, according to the Toronto Regional Real Estate Board.

The impact

All Canadian homebuyers who are renewing or applying for mortgages will be impacted by this change to the mortgage stress test rule. No of your salary, this new rule applies to you as well. The decision to enact stricter stress testing will lower borrowers’ prospective purchasing power by just over 4%. A rise in immigration will also raise demand once the pandemic has passed, putting additional pressure on the market and making options like renting more alluring.

Mortgage Stress Test Example

Assume a home buyer with a down payment of $100,000 and a family income of $100,000. Based on a mortgage rate of 2.23% and a prior qualifying rate of 4.79%, the prospective buyer may have been roughly able to afford a $463,500 house. The maximum property price the potential buyer may afford has been decreased to approximately $447,000, which is 4% less, with the new qualifying rate of 5.25% and the same mortgage rate. The potential home buyer would need to make up the difference by increasing their down payment by $16,000 in order to finance the same home as before under the new stress test regulations.

What the future holds for you? 

The results of this new stress test may be difficult to anticipate, but tightening governmental regulations always have a negative impact on market sentiment. With a sizable down payment, getting a mortgage accepted can be tough. This should not deter you from investing in real estate. Canadian private MFTs, which have developed and given many Canadians exposure to real estate and a stable income, are another wise choice. Allow Pyramine to demonstrate a more creative way to use private MFTs to invest in Canadian real estate. Our skilled leadership group has a track record of finding and accumulating wealth through real estate. Our private MFTs provide stability, diversification, and aid in portfolio growth.