If you wish to plan a year or some years, sow seeds and trees, but if you wish to plan for a lifetime, have a stress test your mortgage.” Rate Trade Helps as new mortgage rules instigated in 2018 demand all Canadian home buyers to encounter a mortgage stress test, if you still make a down payment of 20% or more. Formerly you only have to stress test your mortgage if you made a down payment of less than 20%.
How Does This Affect You?
Home buyers who are paying less than 20% on their mortgage will have to take this new stress test (but even those who are able to put down a 20% down payment may find themselves becoming disqualified for a home mortgage).The test determines whether you would be able to make payments if interest rates were going to increase. So, if you’re someone who qualifies for the best possible interest rate at 2.94%, the stress test requires that you can handle payments at an interest rate of 5.14%. In other words, you have to qualify for a mortgage at the Bank of Canada qualifying rate. This creates a buffer between the rate you’re being offered and the rates that you might be paying in the future. It’s actually a pretty great tool for protecting your investment.
However, for Canadians looking to purchase their first home, it can cause some confusion. It’s difficult to know what your budget is now, and what houses you can afford. Where do you start looking? Can you even afford to buy in the area you want? Knowing your stress test limits will answer all of these questions
Stress testing your mortgage forms good financial intellect, & as of January 2018, has become a compulsory element of applying for a mortgage in Canada.
Stress testing your mortgage is more than ever important in the current financial climate because interest rates are on the rise in Canada. The stress test need homebuyers to qualify for a mortgage interest rate that is higher than the rate they’ll end up actually getting. You need to prove that you would be financially OK even if interest rates were to rise considerably above their definite mortgage rate.