Changes to the B-20 Mortgage Stress Test

If you are looking to buy a new home, now may be a great time to take that next step. Why now? For the first time in three years, the Bank of Canada mortgage stress test rate has been lowered — meaning you could be approved for a bigger mortgage now than you would have previously.

Here is what you need to know about the recent changes to the B-20 Mortgage Stress Test:

What is the mortgage Stress Test?

The Stress Test was created to test whether mortgage applicants will be able to afford mortgage payments if their finances were to become stressed. It is designed to protect borrowers from overextending themselves and/or putting their homes in jeopardy if interest rates rise.

What has changed?

The Bank of Canada’s minimum mortgage qualifying rate has been lowered to 5.19 percent from 5.34 percent. This rate is calculated by the Bank of Canada based on the average five-year, fixed posted rates at Canada’s Big Six banks.

How does this impact homebuyers?

The new qualifying rate gives homebuyers more purchasing power. It will allow homebuyers to qualify for a bigger mortgage than before, even if everything else in their finances remains the same.

According to rate comparison website ratehub.ca, the average borrower can afford approximately 1.4 percent at the new rate. For example, if a homebuyer earned $100,000 per year and had a down payment of 20%, they could have previously qualified for a home valued at $589,000. Based on the new lower stress test rate, they could buy a home worth $597,000.

What else should you consider?

It is important to remember that while you may be able to afford a more expensive home, the lowered stress test bar doesn’t make it any easier to pay off that mortgage. Homebuyers should carefully consider how much they can afford and not necessarily enter into the market at the maximum mortgage amount that they are approved for.

Genesis Builders Group offers many different home options at affordable price points. We are happy to answer any of your questions and help walk you through the homebuying process to ensure you make the right choice for you and your family.

For more information, check out our previous blog on the B-20 Mortgage Stress Test. Follow us on Facebook and Instagram to learn more about our available homes, news, and promotions.