Financing Your Mortgage: Stress Test Eliminated Starting November 21

By Margaret E. Hawkins of Merovitz Potechin LLP on Wednesday October 23, 2024.

Right now, lenders require you to pass a ‘stress test’ to approve your mortgage renewal. As of November 21^st, this will no longer be the case.  Note that this only applies to straight switches of uninsured mortgages between lenders – that is, mortgage renewals only.

What is the Mortgage Stress Test?

The ‘stress test’ for uninsured mortgages was first introduced in January 2018 and its purpose was to manage risk by ensuring that borrowers could handle potential future rate increases.  You obtain an uninsured mortgage with a down payment of 20% or more.  Generally, borrowers had to qualify by either reaching the threshold of the Bank of Canada’s rate or their mortgage rate plus 2% (whichever is higher).  Lenders implemented the mortgage stress test to ensure borrowers can afford potential variable rate increases during the term.. It was also implemented to attempt to ensure that borrowers would be able to afford to renew their mortgage after the term even if the applicable rate on renewal was marginally higher.

Concerns About the Stress Test

While this stress test has been in place, homeowners have voiced concern that it is an unfair test compared to those with an insured mortgage. Homeowners also believe that, since they already passed the stress test on their initial mortgage application, subjecting them to another test at renewal is redundant and unnecessary.

Changes to the Stress Test as of November 21, 2024

The takeaway: As of November 21, 2024, you can now shop around and find the best lender and rate for you in your current financial circumstances, without worrying about passing a stress test when you are renewing your mortgage. It is one less hurdle to overcome when renewing your mortgage for another term. The hope is also that this policy change will encourage and support a more fair and balanced market for homeowners.

Potential Impacts of Removing the Stress Test

Eliminating the stress test could also potentially increase access to homeownership by making it easier for buyers to qualify for loans. The risk, however, is that borrowers may struggle to make payments on their mortgages if interest rates rise in the future. The hope is that removing this policy will properly balance long-term financial stability with increased access to home ownership.

Contact us

If you have any questions about how the removal of the mortgage stress test may affect your mortgage renewal or options, please contact us. Our experienced Real Estate Group is here to help guide you through the changing mortgage regulations and ensure you make informed decisions for your property transactions.