Understanding the Canadian Mortgage Stress Test

If you’re confused by the mortgage stress test, you’re not alone. We break down the factors that influence your stress test results and review your options if you’re unable to qualify for a traditional mortgage.

What is the Canadian Mortgage Stress Test?

The Canadian mortgage stress test is an evaluation that banks are required to use to determine whether you’ll be able to pay your mortgage if interests rates rise.

Introduced by the federal government in 2018, it ensures that homebuyers purchase a home they can afford and considers a variety of financial factors.

Who Must Complete a Mortgage Stress Test?

Anyone applying for a traditional mortgage in Canada must complete the mortgage stress test. You’ll also need to complete it if you’re refinancing, changing mortgage lenders, taking out a second mortgage, or applying for a home equity loan.

How Does the Mortgage Stress Test Work?

The mortgage stress test works by considering the full picture of your financial situation. Lenders will look at your mortgage amount and current interest rates, along with your mortgage amortization period. They’ll consider these factors alongside your household income, housing costs, and your current debt load.

You fail the mortgage stress test if the percentage of your pre-tax income you’ll use to pay for housing costs exceeds 35%, or if your outstanding personal debt is greater than 42% of your pre-tax income.

What to Do If You Fail the Mortgage Stress Test

If you fail the mortgage stress test, you won’t be eligible for a mortgage through a bank. There are several ways to improve your financial situation so that you stand a greater chance of passing the stress test.

Increase the Amount of Your Down Payment

The higher your down payment, the lower your monthly mortgage payments will be. Lower mortgage payments will lower your ratio of housing costs vs. income, making it more likely that you’ll be approved.

Improve Your Credit

A credit score below 700 is a major problem when trying to pass the mortgage stress test. Improve your credit by making payments on time and by paying down debt quickly. Less debt makes you more likely to pass the mortgage stress test.

Try a Rent to Own Program

Our Rent to Home Solution allows you to live in and rent your home for a set term before having the option to purchase it from us. Our program is designed so that even those who fail the mortgage stress test can eventually qualify for a mortgage.

We prepare you for homeownership by helping you save money for your down payment and providing access to realtors and financial planners to help you find the home that’s right for you and budget accordingly. As you pay rent, you’ll also automatically improve your credit rating.

Why Choose JAAG Properties

If you’ve failed the mortgage stress test, don’t give up! You can still qualify for a mortgage with the help of our Rent to Own Program. Apply online today or contact us for more information.