Most of you may have already heard of the mortgage stress test that came into effect in late 2017, but do you really know what it all means? Here’s the low down on how it can affect us all.
The mortgage stress test was passed by the government to protect all borrowers and it affects all borrowers in Canada no matter what income bracket they are in.
Why did this happen?
First, let’s put this in to context and talk about why this new mortgage regulation was passed. The main reason for introducing this new regulation was because, Canadians were carrying too much debt and mortgages make up a large proportion of our debt. Canadian’s saw a lot of changes in the housing market in, 2016 including rising mortgage rates from The Bank of Canada. The unprecedented rising residential housing prices that we were seeing were getting out of hand. Soon enough, the Government started to pay attention. The Office of the Superintendent of Financial Institutions (OSFI) wanted to help Canadian’s keep their “heads above water” and prevent lenders from lending too much.
So, what is a stress test?
The new regulations are a way of determining if you are financially able to still pay your mortgage if the Bank of Canada rates go up. Eventually they will. Broadly speaking, the rules mean you may not be able to borrow as much as you would have been able to prior to the new regulations. If you’re buying, you may have to find a less-expensive home and if you’re renewing, you may have to stay with your current lender.
How to stress test your own finances
Figure out what your GDS (Gross Debt Service ratio) income is. It is usually 30-32 % of your pre-tax income that you will need to pay your housing costs. Some people forget that this also includes not only your mortgage payment, but your property taxes and utilities too.
Do you think you can pass the mortgage stress test? Take a look at this article posted on MoneySense .
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