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Ottawa to Set A New Stress Test Rate

Posted By: Rachel Kavanagh

February 20, 2020

Ottawa to Set A New Stress Test Rate – On Tuesday, February 18th, Finance Minister Bill Morneau announced that effective April 6, the benchmark rate the Bank of Canada sets for the stress test will be replaced by a new rate. This change will affect anyone getting an insured mortgage, including those putting down less than 20% on a new purchase.

Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, is also looking to apply the same new benchmark rate to stress tests on uninsured mortgages.

As of right now, individuals applying for insured mortgages must prove they can afford a payment, based on the benchmark five-year posted rate. The Bank of Canada calculates this rate from the big banks, it is currently 5.19%.

On April 6, a new and improved benchmark rate will be used based on the country’s median five-year fixed insured mortgage rate, plus two percentage points. If the new rate were being used today, it would be 4.89%.

If you are someone who is looking for a mortgage, here are the reasons why this news is important.

The Big Banks will no longer determine the “stress test” rate
For over a year the banks have refused to cut their posted five-year rates enough to reduce the all-important qualifying rate. This has kept the stress test unnecessarily difficult, blocking many borrowers from qualifying for the best mortgage.

Benefits the economy
The new benchmark rate is much more flexible. As the economy fluctuates up and down, more people will be able to qualify for a mortgage and vice versa.

Home prices will heat up
Should the stress test rate remain unchanged by April, borrowers will have 3% more buying power.

More purchasing power
Should mortgage rates fall further the buying power boost discussed could increase. Some economists are predicting a Bank of Canada rate cut as soon as this spring or summer. If this does happen, it could drop the stress-test rate floor once again.

The pressure is off banks to cut posted rates
Since policymakers are changing their approach as to how they calculate the new benchmark rate, the big banks are facing less pressure to lower the posted rates. This means the gap between posted and actual mortgage rates could widen, considering that actual rates fall quicker than posted rates.


Now that Ottawa has listened to the many individuals who asked for the mortgage stress test to be made easier. Time will tell if it does allow for more borrowers to qualify for more loans.

* Ottawa to Set A New Stress Test Rate pulled by the Benczik Realty Team


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