Stress Test Mortgages

[Darts]

Is the purpose of the stress test to ensure that borrowers can still afford their mortgage if interest rates rise as it is doing now?

 

[Scopez]

Yes.


The bank must use the higher interest rate of either:

• 5.25%
• the interest rate you negotiate with your lender plus 2%

Over the last 2 years, variable and fixed rate mortgages were sub 3%, so people were getting stress tested at the 5.25% mark... Now is a different story for new borrowers.

 

[Darts]

Yes.


The bank must use the higher interest rate of either:

• 5.25%
• the interest rate you negotiate with your lender plus 2%

Over the last 2 years, variable and fixed rate mortgages were sub 3%, so people were getting stress tested at the 5.25% mark... Now is a different story for new borrowers.

So, the existing mortgagors should be able to handle the recent increase in interest rates.

 

[laurameida]

I'm glad that there are such tests for stress in the case of mortgages. I didn't know there was such a test, and I was shocked when I read about it on money under 30. But it has a lot of advantages because, in this way, lenders ensure that home buyers can cover their mortgage expenses even in the event of an increase in interest rates or other negative future events, such as an economic recession or job losses. This way, you are sure that neither the buyer nor the creditor will have anything to lose. This is wonderful, and I'm glad it exists.

 

[jazzbox]

M

So, the existing mortgagors should be able to handle the recent increase in interest rates.

Maybe. When OSFI toughened the rules many felt they didn’t go far enough and were half measures.