Content by TD Canada Trust
Whether you are applying for a mortgage for your first home or preparing to renew, the new mortgage stress test may have you wondering – what does this mean for me? Here are a few things you need to know:
- What is the new mortgage stress test?
Don’t let the idea of a test stress you out. The test is actually a set of rules to help homebuyers be confident that they are buying the house they can afford both now and in the future. Under the new rules, homebuyers with a down payment of 20% or more will be tested to ensure they can afford their mortgage payments if interest rates rise. This stress test will use either the Bank of Canada 5 year benchmark rate or the customer’s mortgage interest rate plus 2%, which ever is higher. So if your rate is 3.3%, you’ll be test to see if you can make your mortgage payments at a rate 5.3%. To be clear, if you’re in a fixed rate mortgage, your interest rate won’t go up if the Bank of Canada increases their rate, but the test has been put in place to be sure you can continue to afford your mortgage when it comes time to renew and rates have increase at that time. Details.
- What does this mean if I’m buying a home?
Imagine you’re looking at buying a home for $500,000 and put 20% down. At 3.3% with a 25 year amortization, your payments would be approximately $2,000/month. If we apply the stress test rate of 5.3%, your mortgage payments increase by approximately $400 to $2,400/month. The concern that you can afford your mortgage over the long term is very important as interest rates could continue to rise. Even more likely, is that you’ll have additional expenses like travel, having a family or education costs. Details.
- My mortgage is up for renewal in 2018. What does this mean for me?
Homeowners renewing their mortgage won’t be subject to the stress test if they choose to stay with their existing bank. If your mortgage is up for renewal, and you decide to move to a new lender, you’ll be treated as a new borrower and will have to qualify at the higher stress test rate. Details.
- What if I don’t qualify for the mortgage I want under the new rules?
If you don’t qualify for the mortgage amount you want under the new rules, you may need to consider a less expensive home or to continue saving toward your down payment. Buying a home can be stressful and emotional, but it’s important to be realistic about what you can afford. Buy for right now and what you can afford today so that life events and the unexpected don’t take away from your ability to afford your home later on. Details.
The infographic below helps you navigate what the new stress test means for you:
For more information, talk with your mortgage advisor or visit TD Canada Trust, conveniently located at River District and Brewery District.
TD Canada Trust at River District
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