An Example of a Canadian Mortgage Stress Test
A family with a gross (not net)yearly income of $100,000 is able to qualify for a five-year fixed-rate mortgage at 2.83%, slightly more than two points below the benchmark rate. They have a 25-year amortization period and are making a 20% down payment. If they applied before January 1st (2018), they could afford a home that’s worth $726,939. However, if they were to apply after January 1st, and were subjected to the stress test based on the 4.89% benchmark, they would only be able to afford a home worth $570,970.
The same family with the same income qualifies for a five-year, fixed contract rate mortgage at 3.09%, with a 25-year amortization period and a 20% down payment. Up until January 1st, that family would have been able to afford a home worth $706,692. However, after January 1st, 2018, when their stress test is based on their contract rate, plus two percentage points (now 5.09%) the family will only be able to afford a house worth $559,896.
The GOOD THING IS…..
Disheartening as that thought might be, the mortgage stress test is a good way of ensuring that you don’t end up under a serious amount of debt that you won’t be able to handle. It’s true, you may not have the home you dreamed of right away, but you also won’t be getting into something you can’t handle. Living in a less expensive home might not be that bad of a price to pay, considering what could happen to your finances and family if you couldn't afford it. It’s still worth it to buy a STARTER HOME and then continue to work hard, save up more, and one day be able to afford the home you have always dreamed of.
The OTHER Good thing is
Private lenders and Credit Unions don’t have to do the STRESS TEST. As of 2019.