The current benchmark rate for Canadian mortgages sits at 5.34%. For those who are unaware of what this means, this is the rate that you must qualify for, or in simpler terms, be able to afford the payments of the mortgage at.
The rule was put in place for a couple of reasons. The primary goal with the implementation of the stress test was to reduce overall consumer debt. However, it was put in place to also cool down the rapid acceleration of real estate markets in areas like Vancouver and Toronto.
Unlike CMHC fees, which are insurance payments you need to make if you put less than 20% down on a home, the stress-test applies to every single mortgage provided by federally-regulated lenders. This wasn’t always the case, but was put in place in early 2018.
Due to new mortgage rules that went into effect Jan. 1, 2018, all homebuyers getting either a high-ratio mortgage (those with a down payment of less than 20% on the purchase price on a home) or an uninsured mortgage (those with a down payment of at least 20%) are now subject to a mortgage stress test and have to qualify at a rate that’s higher than they actually pay. (Previously, only high-ratio mortgages were subject to this test).
Today’s best mortgage rate in Ontario is 2.89% (as of Apr. 2, 2019), and the Bank of Canada’s qualifying rate is currently 5.34%. The stress test is based on qualifying for the greater of either the Bank of Canada qualifying rate or plus two percentage points to the contracted rate.
What that means is that even if you get a mortgage rate of 2.89%, the new stress test requires that you qualify for a mortgage of 5.34% — even though you’ll still be paying the contracted 2.89%.