How does the Mortgage Stress Test affect you
Approximately in 2016 the mortgage stress test rules were introduced. Since then, it has become harder for getting approved for a mortgage. Even if you get approved it could be for less. Throughout the years the terms and rules have been modified. Currently the lending institution has to use the greater of the contractual mortgage rate plus 2% or the benchmark rate from the Bank of Canada.
For example, as of today, the prime rate is 6.45%. The benchmark rate that lenders use is currently at 5.25%. Someone applying for a 5 year adjustable rate mortgage (ARM) gets Prime rate – 0.90% = 6.45 – .90 = 5.55%. Then we add the 2% onto this rate, which brings it up to 7.55%. This rate is higher than the benchmark rate. It is this rate of 7.55% that will be used for the stress test calculations. If approved, the applicant’s ARM rate would be Prime -.90%, but the higher stress test rate needs to be used in the mortgage calculations to make sure that under a higher interest rate or a higher stress, the applicant, based on his or her income and debt levels would still be able to afford and manage paying their monthly payments.
Without doing a proper mortgage application and credit bureau review of the applicants it is difficult to tell exactly how much you can get approved for. We encourage anyone who is thinking about buying real estate to contact Trusterra Mortgage to find out exactly how much of a mortgage they can get approved for. There are many factors that affect the approval amount such as income, monthly debt levels, credit score, and down payment. Knwoledge is key here so that you can be better equiped and prepared to successfully apply for a mortgage.
Contact us and lets work together on reaching your real estate ownership goals.