Effective October 17, 2016, all high-ratio mortgages (those where a borrower puts less than 20% down) must satisfy a mortgage stress test. Essentially, a borrower must now qualify using a higher interest rate notwithstanding the fact that their lender is currently offering mortgages at a lesser rate.
Q: What interest rate must now be used when qualifying for a mortgage?
A: The greater of the contract mortgage rate (the rate at which the bank is willing to lend to you) or the Bank of Canada’s conventional five-year fixed posted rate (currently 4.64%).
These new rules are aimed to address concerns that given the low interest rates, borrowers may be overextending themselves and unable to make their mortgage payments in the event that their mortgage rate goes up. Please note that effective November 30, 2016, the above-mentioned stress test will be extended to low-ratio mortgages (those where a borrower puts more than 20% down).