New Stress Test Rate, What you Need to Know!
Zach Silverman | February 6, 2020
The Department of Finance created shock-waves this week with its announcement that it will be revamping how insured mortgages are stress tested.
Now that the dust has settled, here’s a more in-depth look at the implications.
But first, a quick recap of what’s changing come April 6, 2020:
- Current stress test rate for insured mortgages (typically those with less than 20% equity): 5. 19%
- Based on the Big 6 banks’ posted 5-year fixed rates.
- New stress test rate (if it were in effect today): ~4.89%
- Based on a rate equal to the weekly median 5-year fixed insured mortgage rate plus 2%.
Could the new benchmark rate eventually be higher than the current qualification rate?
According to estimates from Mortgage Professionals Canada’s chief economist Will Dunning, yes.
He plotted his estimate of the typical “special offer” rate advertised by major lenders, and as recently as late-2018, the new qualifying rate would have been nearly 40 basis points higher than the new qualifying rate. Dunning notes, however, that it would be beneficial to have official data provided directly from the Canada Mortgage and Housing Corporation (CMHC) to remove some of the guess work from estimating the official average insured mortgage rate.
“Given the history, it’s highly possible that there will be future times when the new qualifying rate will be higher than the posted rate, but I don’t see that as important: the posted rate should never have been part of the mortgage stress tests,” Dunning told CMT.
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