What Is The New Mortgage Stress Test?

What is the new mortgage stress test

On May 20, 2021 Canada’s department of finance announced new qualifying rates for all uninsured mortgages. The Office of the Superintendent of Financial Institutions (OSFI) announced that effective June 1, 2021 new minimum qualifying rates will be applied for all insured and uninsured mortgages.

What does that mean for you?

This means the new mortgage stress test is increasing. Let’s break down how this actually is applied, and ways that you can reduce the impact of the stress test on you!

How The New Stress Test Applies

Previously using a broker may have allowed you to avoid the stress test all together. Now you have to prepare to reduce the impact of the new test. Today, everyone is subject to the stress test, however certain lenders have better debt calculations. This allows you to have a better debt to income ratio, which allows you to qualify for a higher mortgage.

For example many of the big banks in Canada calculate a payment equal to 3% of your student loans into account as part of your debt. But there are many other lenders that only use 1% of the student loan balance in the debt calculation.

There’s another group of lenders that will take even lower payments on the majority of your debts, which are called alternative lenders. If you’d like to get in contact with alternative lenders in Canada then it’s best to use a mortgage broker.

This new stress test was a sudden shift by the OSFI but it was somewhat expected. As Canada’s housing market continues to heat up the middle class is getting squeezed out of the possibility of buying a home. The government implemented this in hopes to cool off the market and stabilize prices.

Under the new rules buyers essentially qualify for a maximum mortgage that is 5% less than what they would have under the old rules.

Ways To Reduce The Impact Of The Stress Test

While we can no longer completely avoid the new mortgage stress test, there are ways to reduce the impact that it will have on your ability to get a loan.

  1. Find the lenders that take more favourable calculations on your debts.
  2. Apply for the first time home buyers incentive (where the government matches 5% of your down payment)
  3. Use a 20% downpayment which allows you to do a 30 year amortization (instead of 25)
  4. Find lenders that will accept childcare benefits, spousal support, and child support as income

Doing these 4 things will allow you to qualify for a higher mortgage despite the new stress test. However finding the lenders that are beneficial to you can be hard without the help of a mortgage broker.

How To Find Lenders That Help

Finding a mortgage lender that can help you qualify for a higher mortgage can be difficult. Using a mortgage broker is typically the easiest way to find these lenders. When you talk with your broker they’ll advise you to which lenders can help you qualify for more.

First time home buyers usually have less savings than regular buyers. This results in first time home buyers usually borrowing at or close to the maximum pre-approval mortgage amount. So this new stress test is going to impact first time home buyers more than the rest of the market.

Starting Your Mortgage Application

Starting your mortgage application and finding the lender that has the best debt and income calculations is easy with the right support. Contact us today to start your application or pre-approval now. The sooner you start looking at lenders, the more knowledge and buying power you’re going to have.

Alex Lavender

Alex Lavender

Alex Lavender is a mortgage broker based out of Halifax, Nova Scotia. He is the author of the book "Mortgages for Millennials" which is used by Canadians to understand how mortgages work. Alex was born raised in a small town in Ontario, and now finds pride in helping everyday Canadians get a mortgage for their first home.

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