01/04/2022
1 out of 5 mortgage borrowers who are stress tested, would fail the stress test.
Almost 20% of new mortgage applicants would be turned away from being approved for a mortgage, because of hypothetical scenarios. The stress test is a way for banks to ensure that those who are seeking a mortgage, can safely make payments regardless of how much interest rates can fluctuate.
As of June 2021, the qualifying rate for a stress test is either your lender’s rate plus 2%, or 5.25% - whichever is higher. For example, if you were looking to secure a mortgage with a value of $520,000 with your lender's interest rate of 1.87%, you would have to prove that you could afford a monthly mortgage payment of $3,099. Your actual monthly mortgage payment would be much lower at $2,169.
The stress test adds a blanket of safety for lenders and is required to be passed by all borrowers, regardless if this is your first mortgage or your 10th. The stress test is also a way to ensure that house hunters stay within budget without stretching themselves too thin.
What’s your take on the stress test?
