The bar has finally been lowered for Canada’s mortgage stress test

Canadian mortgage borrowers have been waiting years for this moment.

This week the Bank of Canada’s qualifying rate declined, something that hasn’t happened since 2016.

The rate fell to 5.19 percent from 5.34 percent the previous week.

That’s significant because the rate, an average of the five-year posted fixed rates available from Canada’s six biggest banks, sets the bar for mortgage stress tests.

Since 2016, borrowers who can’t muster a downpayment of at least 20 percent have had to qualify at this Big Six average.

Beginning last year, similar stress testing was introduced to the uninsured segment, so homebuyers could no longer sidestep the test by simply putting forward a larger downpayment.

The newer stress test has an additional element: insured borrowers either have to qualify at the so-called benchmark rate or their contract rate plus two percentage points, whichever is higher.

Last month, five-year fixed-rate mortgages sunk to a two-year low when the lowest available rate was 2.64 percent, according to RateHub, a mortgage-comparison website.

In that case, a borrower would have to qualify at the Bank of Canada’s benchmark rate, as it surpasses 2.64 percent plus 2 percentage points.

There have been calls from the industry to ease the stress test. Some argue the test is too tough and puts homeownership out of reach for too many.

The British Columbia Real Estate Association estimates that home sales in the province were reduced by as much as 15 percent in 2018 because of the stress test introduced that year.

While the qualifying rate dropping likely isn’t exactly what critics had in mind — one expert recommends reducing the test in the case of larger downpayments, for instance — it could help some Canadians realize their homebuying dreams.

Ian Clark

Ian Clark is a graduate of The College of The North Atlantic's School of Business and is a Mortgage Broker with East Coast Mortgage Brokers. Prior to ECMB, Ian was brokering with Mortgage Alliance Provincial Mortgage Group. Ian is also an active member of Mortgage Professionals Canada, Canadian Mortgage Brokers Association, Canadian Progress Club and the Mount Pearl Paradise Chamber of Commerce.