Canadian Mortgage Stress Test (2021) - Do you pass the test? - YouTube

You want to get approved for a Canadian  bank mortgage, but you're being told you  

need to pass a mortgage stress test. But what  exactly is it? In this video I'm going to give  

you a simplified explanation on what it is, and  show you exactly how to determine if you pass.

Victor here, and welcome to a series of videos  that help Canadians get approved for a mortgage.  

If you're new here and want to  receive valuable mortgage tips,  

consider subscribing. So what is a mortgage  stress test? And how do you study for it? Relax,  

it's not that kind of test! It's a  new mortgage rule introduced in 2018.  

To qualify for a mortgage at a bank, you will need  to pass this test using the minimum qualifying  

rate. And that rate depends on your down payment.  If it's less than 20%, you need a high ratio  

mortgage. And that qualifying rate is either  the bank of Canada's five-year benchmark rate,  

which is 4.79 as of January 2021, or the rate  offered by your lender, whichever is higher.  

Otherwise, if your down payment is greater than  twenty percent, your qualifying rate is either  

four point seven nine percent, or the rate you  negotiate with your lender plus two percent,  

whichever is higher. Okay, we need an example. But  before we get into an example, let's talk about  

why the banks do this. As the name of the rule  implies, it puts your affordability to the test.  

Today, interest rates are at record lows. But  what if they rise over the next few years?  

How would you cope with higher mortgage  payments? Basically the test helps you  

come face to face with the rising costs of  being a homeowner. And knowing this now takes  

the guesswork out of how much you can afford.  Plus you'll avoid nasty last minute surprises.  

Okay, let's consider this example where you need  a 500 000 mortgage, amortized over 25 years.  

Let's say your amazing broker got you an awesome  rate with the bank at 1.59 percent. Your monthly  

payment would be $2,019. That's great, isn't it?!  Now hold on. Remember the qualifying rate is 4.79%  

or the rate offered by your lender, whichever is  higher. In this case, 4.79 is greater than 1.59,  

so we need to use that instead. At  4.79% your monthly payment would be  

$2,848, a difference of $829 a month! That’s an  increase of 41%! To be clear, this is not the  

payment you'll be making right now. This is only  a test. A stress test, to be exact. It asks the  

question, could you still afford your home if  your payments went up by 829 dollars a month?  

And if the answer is yes, then congratulations!  You passed the test! Otherwise, you might have  

to settle for a home of lesser value, pay down  debt, or increase your down payment. To determine  

right now if you would pass the mortgage stress  test, follow the link in the description below  

to the alternative mortgage website. I've created  a calculator that easily and quickly tells you if  

you would pass, given your specific needs. Here's  a quick tutorial. The calculator is pre-populated  

with default numbers from the example discussed.  Simply replace those with your own. First, enter  

the purchase price or the price of a house that  you're considering, followed by your down payment.  

Enter it as a percentage or dollar value. For the  rate, enter the mortgage rate you've been offered.  

If you don't have an offer, leave it as it is.  The calculator automatically determines the stress  

rate, so you don't have to worry about that. In  the next section, enter your total gross annual  

household income. That's all the combined  income from all applicants before taxes.  

Leave the property tax, heating costs, and condo  fee as is, unless you know the specific costs for  

your property. Next, enter all your monthly debt  payments for credit cards, lines of credit, car  

payments and any other monthly debt obligations.  Scroll down and see your results instantly!  

If you pass, congratulations! You're likely to be  approved at a bank for your requested mortgage.  

Contact me and I'll help you shop for the best  rate and terms from among 50 of Canada's leading  

lenders. That'll save you a ton of time and money.  If you didn't pass, don't worry. Play around with  

the figures to see what could be giving you a  failing mark. Try to lower the purchase price  

or increase the down payment. It's also possible  that your monthly debt payments are too high.  

In any case, you may still have other options.  Some lenders are more lenient or offer mortgages  

designed for borrowers that are self-employed or  have less than perfect credit. Have any questions?  

Then please drop a comment below. Navigating  all these mortgage rules can be complicated,  

but I'm here to help! Book your free discovery  call and we'll figure it out together.  

Contact details are in the description  below. Thank you for watching  

and don't forget to subscribe. Have a  great day and I'll see you next time!