Understanding the New Stress Test Changes

July 26, 2022

Key points:

  • The Bank of Canada’s most recent rate hike has resulted in changes to the stress test
  • Variable-rate mortgage holders will find the amount they are pre-qualified for has changed

Changes to Canada’s stress test

The Bank of Canada’s recent rate increase affects the stress test for mortgage borrowers, and how much they qualify for. This video breaks down the stress test, and who is going to be most affected.

Don’t feel like watching? Find the full transcript below!

Chris: [00:00:00] Last week, the Bank of Canada increased the prime rate by one per cent. So the question is how will this impact the amount of mortgage that you qualify for on a new mortgage application? Let’s discuss.

Variable-rate mortgage qualifications have changed

Chris: [00:00:12] A little crash course first in the stress test. So currently in Canada, to qualify for a mortgage, you must be stress tested. And that stress test requires a qualifying rate. The qualifying rate is the greater of the Bank of Canada qualifying rate, which is five and a quarter per cent, or the contract rate on your mortgage plus two per cent. So what this means is that for borrowers who were pre-qualified based on a fixed- rate mortgage, last week’s announcement had no change to the amount that you were qualified for on a mortgage. So steady as she goes. 

But if you were pre-qualified based on a variable-rate mortgage, look out. Because with that one per cent increase to the prime rate, your contract rate has now increased to probably somewhere into the four per cent range. And that has now pushed us over that threshold of a five and a quarter per cent Bank of Canada qualifying rate approval. So pay attention if you are looking for a variable-rate mortgage or were pre-approved under a variable-rate mortgage, the amount that you prequalified for has changed.

Need more help or information?

Chris: [00:01:22] My name is Chris Molder. I’m a Toronto based mortgage broker. If you have any questions about how the changing stress test impacts your mortgage qualification, I’m just a phone call or an email away. Bye. For now. Until next time.

You can book a call directly into my calendar below, or get in touch with me here.