As of January 1, 2018 the Office of the Superintendent of Financial Institutions (OSFI) is expanding stress tests to all mortgages, not just insured mortgages.
Stress tests have always been required for high-ratio mortgages (less than 20% down payment) because it is required that high-ratio mortgages are insured, as they are more risky. Mortgage insurance is optional for low-ratio mortgages (at least 20% down payment). In October 2016, the government expanded the stress test requirements to all insured mortgages, not just high-ratio mortgages.
A stress test means that home buyers will be tested by their lender to see if they are able to afford their mortgage if interest rates were 2% higher than the rate they were approved for, or as high as the Bank of Canada’s 5-year Conventional Mortgage Rate, currently about 4.99%, whichever is higher.
The purpose of these stress tests is to protect the long-term stability of Canada’s housing market and force buyers to purchase properties that they can more comfortably afford. It will most affect first-time buyers, who will either need to save more for their down payment or purchase a less expensive property. Move-up buyers will also be affected because they are most likely to have a larger down payment from their home equity and qualify for an uninsured mortgage.
Uninsured mortgages account for 46% of the countries total $1.5 Trillion mortgage credit outstanding according to the Bank of Canada.
The benefit of the stress test expansion is that if a property owner can afford their mortgage payments through interest rate changes, they can stay in their home through the ups and downs of the market and sell at an opportune time rather than out of necessity.
A recent Toronto Star article sums up the new changes while outlining potential impacts. To read further, click the link below. https://www.thestar.com/business/2017/10/17/new-mortgage-stress-test-to-hit-move-up-home-buyers.html