On October 2nd changes to Canada’s mortgage qualifying rules were announced by our Finance Minister. As of Oct 17, a stress test used for approving high-ratio mortgages will be applied to all new insured mortgages—including those where the buyer has more than 20% for a down payment.
The stress test is aimed at assuring the lender that the home buyer could still afford the mortgage if interest rates were to rise. The home buyer would need to qualify for a loan at the negotiated rate in the mortgage contract, but also at the Bank of Canada’s five-year fixed posted mortgage rate, which is an average of the posted rates of the big six banks in Canada.
This rate is usually higher than what buyers can negotiate. As of Sept 28, the posted rate was 4.64%. Other aspects of the stress test require that the home buyer will be spending no more than 39% of income on home-carrying costs like mortgage payments, heat and taxes. Another measure called total debt service includes all other debt payments and the TDS ratio must not exceed 44%.