Understanding the Stress Test: How It Affects Your Mortgage Application

Understanding the Stress Test: How It Affects Your Mortgage Application

In Canada, qualifying for a mortgage isn’t just about finding a lender and securing a rate—it’s also about passing the federal mortgage stress test. This test, introduced to ensure that homebuyers can handle future interest rate increases, applies to all borrowers, whether you’re putting down 5% or 20%.

The stress test requires lenders to assess your ability to make mortgage payments based on a rate higher than the one you’re being offered. Specifically, you’ll need to qualify at either the Bank of Canada’s benchmark rate or your mortgage rate plus 2%, whichever is higher. This means that even if you’re offered a low interest rate, you still have to show you can afford a higher one.

The goal is to prevent borrowers from becoming over-leveraged, especially in the event of rising rates. However, it can also reduce the amount you’re able to borrow, making it crucial to know your financial limits before you start house hunting. If you’re preparing for a mortgage, understanding how the stress test works is key to setting realistic expectations for your home purchase.

If you need more information on navigating the stress test or want to explore your mortgage options, feel free to contact me!

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