The mortgage stress test, also called the qualifying rate, is a financial check used by lenders to ensure borrowers can afford their mortgage even if interest rates rise. It requires applicants to qualify at a higher interest rate than the one they will actually pay.
How It Works
In Canada, the qualifying rate is either the Bank of Canada’s benchmark rate or the borrower’s contract rate plus 2%, whichever is higher. This ensures borrowers have a financial cushion against future rate increases.
Why It Matters
- For lenders: Reduces the risk of defaults by ensuring borrowers can handle higher payments.
- For borrowers: Provides a safeguard, preventing overborrowing and financial strain if rates rise.
Final Thoughts
The stress test makes it harder to qualify for a mortgage but helps ensure long-term affordability. Understanding how it works is essential for anyone planning to buy a home or refinance in Canada.