Effective April 6, 2020, the federal government will change the stress test rate for insured mortgages. The change will loosen the barrier to entry — even if only somewhat — into Canada’s housing markets. The new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%.

The stress test rate currently is the greater of the borrower’s contract rate or the Bank of Canada 5-year benchmark posted mortgage rate which is currently at 5.19%.

Assuming rates stay the same by April, by my calculations a 30-basis point reduction in the stress test would give most borrowers upward of 3% more buying power. That would translate into $15,000 more buying power on a $500,000 mortgage. It won’t be a game-changer, but it may be enough to move closer to the Lower Mainland or it may be what you need to make a lateral move from an older condo to a newer condo or even move up from a 1-bed to a 2-bed condo.

The Office of the Superintendent of Financial Institutions (OSFI) also announced that it is considering the same new benchmark rate to determine the minimum qualifying rate for uninsured mortgages. The existing qualification rule, which was introduced in 2016 for insured mortgages and in 2018 for uninsured mortgages, wasn’t responsive enough to the recent drop in lending interest rates — effectively making the stress test too tight.

If this news is just what you need to pull the trigger on your next home purchase, feel free to reach out to us and we’ll be happy to pre-approve you for a mortgage to see how much you can qualify for under these new stress test rules.