What is the Mortgage Stress Test?

Mortgage Stress Test

The Stress Test was introduced in 2018 by the Office of the Superintendent of Financial Institutions (OFSI). The purpose of the stress test is to ensure that a borrower can afford the mortgage even under special circumstances. For example, if you lost your job, if interest rose significantly, or if you take on new debts, can you still afford to make the mortgage payments?

Since 2018, borrowers have been qualifying at a higher interest rate than the interest rate they are actually paying. With the heated housing market, low-interest rates, and higher % of household debt, all due to COVID-19, OSFI is stepping in to increase the mortgage stress test from 4.79% to 5.25% effective June 1st, 2021.

Example

Purchase Price $510,000

Down Payment (20%) $102,000

Mortgage Amount $408,000

Monthly Payment

Contract Rate Offered 1.3% $1,594

Qualifying Rate 5.25% $2,432

In the above example, even though the client is offered an interest rate of 1.3%, which equals a monthly payment of $1,594, they are qualified at a mortgage payment of $2,432 per month.