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Starting on June 1st 2021, Canada’s federal banking regulator has once tightened the rules on the Mortgage Stress Test. This is the percentage rate set by the regulator that borrowers need to qualify at for a mortgage, regardless of what the actual interest rate is at the time of applying. This change will affect both potential home buyers with a 20% down payment or less than 20% down.
The thinking around this is to have borrowers show that they can continue to pay their mortgage on the off chance that rates will rise to the stress level qualifying rate. The stress test will also apply to borrowers who are looking to refinance.
Essentially the stress test will affect borrowing power by Approximately 5%. For example, a family with an annual income of $100,000 with a 20 per cent down payment and five-year fixed mortgage rate of 1.78 per cent amortized over 30 years would qualify for a home valued at $651,000 under the previous 4.79 per cent qualifying rate, according to ratehub.ca.
Under the new stress test rate of 5.25 per cent, that family’s maximum affordability would decrease to $618,000.
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