Since the mortgage stress test was introduced, it has been a hot topic for Canadian homebuyers. The stress test introduced a way for the Canadian government to protect Canadians and lenders against mortgage default and is applied to anyone who wants to begin a mortgage loan and some who are renewing.
However, although the mortgage stress test touches just about everyone who is buying a home in Canada, many people still do not understand the circumstances that lead to its creation, its purpose, and how it affects their real estate purchase.
Understanding the stress test is crucial for anyone who is looking to purchase real estate, If you are unable to pass the stress test, you will not be able to complete your home purchase – though there are ways to help yourself pass more easily. In this article, we will explain everything you need to know about the Canadian mortgage stress test.
History of the mortgage stress test
The mortgage stress test began as an idea in the mid-2010s. The purpose of the test was twofold: for one, the government wanted to prevent Canadian household debt from running rampant and for the Canadian economy to be protected from instability as a result of an overleveraged population. At the same time, house prices were on a continuous rise and the stress test offered a partial solution. By making more buyers ineligible to buy a home, the hope was that some demand in the market would be reduced.
The scope and strength of the mortgage stress test have also varied. Originally, the stress test only applied to insured mortgages but has since been expanded to uninsured mortgages as well. The minimum qualifying rate for the mortgage stress test has varied, though it has generally remained around the 5% level. The Bank of Canada adjusts the rate based on current mortgage interest rates and other market conditions.