How will the new mortgage stress test rules affect home buyers?

Dated: July 1 2021

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Being cooped up at home in major cities in Canada has made many consumers long for moving farther out of city centres and acquiring more space. The heightened demand has created a frenzy in the housing market and has caused some consumers to bid much more than normal for an average home or recreational property. This has been especially true of Victoria where house prices have accelerated significantly in the past few months, pushing more potential home buyers out of the market.


The record-breaking demand for homes and low inventory all across Canada has made it necessary for the federal government to step in and cool the over heating housing market. As of June 1, 2021, it’s now more difficult to qualify for a mortgage in Canada due to new stress test criteria. The overall effect the stress test will have will be to reduce the number of qualified borrowers in the hopes of cooling down the market.


You might be wondering; how does this affect me as a home buyer? The mortgage stress test will affect you in the following ways. The minimum qualifying rate for uninsured residential mortgages with a down payment of 20% or more, will rise to either your contracted rate plus two percentage points or 5.25% - whichever is higher. The previous threshold was 4.79%. The new rules apply to insured mortgage borrowers, those who make a down payment smaller than 20% on their home purchase as well as uninsured borrowers, who have a 20% down payment or more.

Currently, if a buyer had a $100,000 down payment and wanted to purchase a home that was $400,000, they would need a $300,000 mortgage. At two per cent on a standard 25-year loan, that would cost the buyer $1,270 a month. However, under the new stress test, the mortgage application would be tested as though the rate was 5.25%. The loan would now cost the buyer over 40 per cent more every month or $1,788.

Although your actual mortgage rate might be lower, you will have to qualify at the higher rate for the bank to approve the mortgage. You may be wondering how the banks will know how much you qualify for. Mortgage Brokers and lenders will specifically look at your Gross Debt Service Ratio (GDS), which is the percentage of your monthly household income that covers your housing costs. The GDS, which includes your mortgage, utilities and property taxes, should not exceed 35%. Then there is the Total Debt Service Ratio (TDS) which is the percentage of all personal debt. The TDS, which could include a mortgage, utilities, car loans, student loans, credit card debt, etc., should not exceed 40% of your pre-tax income.

With these factors in mind, it may seem difficult to acquire a mortgage if you are in the market to purchase a new home. However, many mortgage brokers I have spoken to recently said that most consumers will be okay if they continue to save for their down payment, pay down their personal debts for a lower TDS, or use a co-signer for a larger mortgage.


For peace of mind, speak to one of the following trusted mortgage brokers in Victoria today for more information on qualifying for a mortgage with the new stress test rules.

- Tricia McIntosh Mortgage Group
- Jason Chapman Mortgages
- Prime Mortgage Works (1030 Yates Street)
- Amy Kinvig Easy Breezy Mortgages
- Fernando Zilli Tribeca Mortgages

CMHC info on buying a home: https://www.cmhc-schl.gc.ca/en/consumers/home-buying

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Jemilla Khan

Jemilla is a residential REALTORĀ® in Victoria, BC. She serves the communities of Victoria, Oak Bay, Esquimalt, Victoria West, Saanich West, Saanich East, the Westshore and more. Previously to getting....

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