Wednesday’s decision is the fourth time in a row that interest rates have been lowered since June. It is also the Bank of Canada’s largest rate cut since the global financial crisis in 2009, except for during the COVID-19 pandemic. “We made a bigger cut today because inflation is now back to the two percent target, and we want to keep it close to that target,” said Bank of Canada governor Tiff Macklem. Phil Soper, the president and CEO of Royal LePage, said the most immediate impact of Wednesday’s rate cut will be felt by those who have variable rate mortgages. “Housing market activity has been slow in many regions due to higher borrowing costs but today’s more aggressive cut to lending rates could cause a quick turnaround. For those with variable rate mortgages – who will benefit from the rate drop right away – or those with mortgages coming up for renewal soon, today’s announcement is very good news,” he said. Soper added that cuts to the lending rate will mean many homebuyers will “get off the sidelines & start buying.” “In turn, rising demand will cause home prices to increase more rapidly, eliminating the advantages of lower borrowing costs,” he said. “We expect an early spring market is on the way – a trend we’ve seen in previous market turnarounds.” James Orlando, director of economics at TD Bank, said, “If there’s one thing that a lot of Canadians don’t want, it’s for housing in Canada to become even less affordable.

Unaffordable Housing

It’s already unaffordable right now.” Orlando said if the Bank of Canada cuts rates too quickly, it could lead to a “recoil” response from the housing market, with prices shooting up dramatically. “It causes buyers to have this fear of missing out in the market that causes prices to start jumping up too high, and it makes housing even less affordable.” Davelle Morrison, a broker at Bosley Real Estate in Toronto, said this rate cut could be a good opportunity for first-time homebuyers and for anyone with debt, such as credit card debt or an upcoming mortgage payment. “This is a great opportunity for those people who’ve been looking to get into the market especially for first-time homebuyers where there are so many condos on the market right now for them,” she said, adding that in the Greater Toronto Area, condo sales have lagged behind single-family homes. Morrison said while Wednesday’s rate cut could spur some movement in the housing market, it is unlikely to be a “runaway situation.” She expects some prospective homebuyers would still be cautious. “Some people might wait for that next rate announcement in December. I would suggest to those people, you could go buy something now & close after the next rate cut. That way you’re getting in at a lower price but you’re taking advantage of the next rate cut,” she said.

She said another obstacle to homebuying for many in Canada is the “stress test.” Before someone borrows money from a federally regulated lender like a bank, they need to prove they can afford payments at a qualifying interest rate. This rate is higher than the actual rate in a mortgage contract. This is referred to as the “stress test.” The stress test requires borrowers to qualify for a mortgage at a rate of 5.25 percent or two percent above the contract rate whichever is higher. Borrowers need to prove they could handle higher monthly payments if the central bank rate rose rapidly. “We’ve got that new rate of 3.75 percent but buyers are still being stress tested and approved at a rate that’s two percent higher” she said. “That impacts our buying power.”

Economists suggest that the Bank of Canada may require another significant rate cut in order to accommodate slow growth.

Economists believe the Bank of Canada’s yearly economic growth forecast is too optimistic. They say another large interest rate cut will likely be needed this year to boost growth. Many economists widely expected the Bank of Canada to lower its annual gross domestic product (GDP) forecast when it released its quarterly report on Wednesday. This is because there has been a series of disappointing growth data recently.

However, the bank only revised its third-quarter growth projection downwards and kept its 2024 estimate unchanged. This surprised many economists and analysts. “The bank had a more positive view on the economy for this year” said Tony Stillo the director of Canadian economics at Oxford Economics. He said annual GDP is likely to come in below the bank’s estimate. As a result, the bank would have to cut rates by another 50 basis points in December to support the economy. In its report the bank revised down its estimate of annualized third-quarter GDP to 1.5% from 2.8% in July.

However its full-year estimate remained unchanged at 1.2%, along with no change to its 2025 projection. “If growth comes in slightly below the Bank of Canada’s forecast, it could be one factor that supports a 50 basis-point cut in December,” said Avery Shenfeld, Managing Director and Chief Economist for Capital Markets at CIBC. A bigger-than-usual cut would also bring the key policy rate to the upper end of what the Bank of Canada estimates is its neutral rate of interest. Economists say this is a prudent level where the bank can start slowing rate cuts. A neutral point is when the policy rate is neither restricting nor stimulating economic growth. “We continue to expect one more 50-basis-point rate cut from the Bank of Canada this December,” wrote Claire Fan, an economist at RBC, in a report. She added that real GDP growth was more likely to stay subdued for longer as interest rates remain restrictive until 2025.

The bank reduced its key benchmark rate by 50 basis points to 3.75% on Wednesday. Governor Tiff Macklem said he would like to see growth strengthen as inflation was largely tamed. He said the pace & timing of further reductions would depend on incoming data between now and December 11, when the bank announces its next rate decision. The bank will have two sets of GDP data – for August & September, inflation numbers for October, and two jobs reports before it makes its next decision.

The Bank of Canada has decided to keep its benchmark interest rate at five percent, as the Canadian economy shows signs of cooling. The bank has raised the rate 10 times since early 2022 to slow down runaway inflation but has recently signaled that it may be nearing the end of that hiking cycle. Economists who monitor the central bank think it is now done with hiking, and expectations are that the bank will start to cut its rate sometime in 2024. Despite this, the bank took great pains to note that it is still willing to raise rates by even more, should the need arise.

The Details of The Bank Of Canada Maintains Its Interest Rate At 5 Percent, As Anticipated

The Bank of Canada has decided to keep its key interest rate steady at five percent, as expected. This comes after the bank raised rates 10 times since early 2022 to combat high inflation. However, recent signals from the bank suggest that it may be nearing the end of its rate-hiking cycle.

The bank’s rate affects the rates that Canadians receive on loans and savings accounts. The current rate was set in July and has remained unchanged since then, as the Canadian economy shows signs of slowing down.

The bank stated that the slowdown in the economy is reducing inflationary pressures on a wide range of goods and services. Economists believe that the bank is now finished with rate hikes and may actually begin to cut rates in 2024.

While the bank indicated that it is still willing to raise rates if necessary, some economists believe that this is just a precautionary statement to prevent markets from assuming that rate cuts are imminent.

The bank’s decision to hold rates steady was not surprising, as it marked the third consecutive time that rates remained unchanged. However, there is speculation about when the bank will start cutting rates, but the bank has given no indication of when that may happen.

Despite the bank’s statement about potential rate hikes, many economists and market watchers believe that rate cuts are more likely. They argue that the central bank will have to cut rates as the unemployment rate rises and spending in the economy declines. However, the bank wants to see further easing of underlying price pressures before making any decisions.

While financial markets predict rate cuts to start in the first quarter of next year, some commercial banks expect cuts to begin in the second half of next year. The Bank of Canada’s next rate decision will be announced on January 24th.

Ultimately, the timing of rate cuts will depend on how the economy performs in the coming months. The Canadian economy has struggled this year, weighed down by higher borrowing costs. GDP contracted in the third quarter, and the labor market has weakened.

Overall, economists anticipate a sluggish year ahead for the Canadian economy, as it adjusts to the previous rate hikes.

Wrapping Up

The Bank of Canada has decided to maintain its benchmark interest rate at five percent, as expected. The bank has been raising rates over the past year to combat inflation but has recently indicated that it may be reaching the end of its hiking cycle. The decision to keep rates unchanged was influenced by signs of a cooling Canadian economy and a reduction in inflationary pressures. Economists predict that the bank will begin cutting rates in 2024. While the bank stated its willingness to raise rates further if necessary, some believe it is an empty threat. The central bank is still cautious about the inflation outlook and remains prepared to raise rates if needed. However, there has been a shift in their messaging, with officials suggesting that the economy is approaching balance and interest rates are restrictive enough to bring inflation back to the target.

The decision to maintain the interest rate comes as the central bank observes weaker growth and a cooling job market, indicating that demand is no longer outpacing supply. While the bank has not provided hints about when rate cuts may occur, financial markets and economists expect rates to be lowered in the future due to rising unemployment and a slowdown in spending. The next rate decision and updated economic forecasts from the Bank of Canada are scheduled for January 24th. The timing of rate cuts will depend on how the economy performs in the coming months, as higher borrowing costs continue to weigh on the Canadian economy. Overall, the Bank of Canada’s decision to hold rates steady reflects ongoing concerns about inflation and a desire to restore price stability.

Mortgage providers in Canada have been reducing fixed mortgage rates in response to a sharp decline in bond yields. Over a dozen national mortgage providers have dropped their rates by 10 to 30 basis points, with most rate changes concentrated in the 3- to 5-year terms. However, the rate drops were not expected to match the decline seen in bond yields due largely to risk premiums.

Meanwhile, the House of Commons Standing Committee on Finance has called on the Minister of Finance to reject RBC’s proposed acquisition of HSBC Canada, citing concerns over competition and potential fee increases for Canadians.

The Details of Breaking Mortgage News: Lenders Slash Fixed Rates by Up to 30 Basis Points

Mortgage lenders in Canada have been reducing their fixed mortgage rates in response to a significant decrease in bond yields. The 5-year Government of Canada bond yield, which is a key factor in determining mortgage rates, has dropped by nearly 30 basis points and is currently around 3.80%.

This represents a decline of over 60 basis points from its peak of 4.42% in early October. More than 12 major mortgage providers in the country have already lowered their rates by 10 to 30 basis points, particularly in the 3- to 5-year terms. This is based on data compiled by MortgageLogic.news.

Experts, like Ryan Sims from TMG The Mortgage Group, have noted that while mortgage rates are decreasing, they are not dropping as much as bond yields. This is because lenders and mortgage providers are factoring in risk premiums given the possibility of an economic downturn in the near future. That means for the possibility of an impending economic downturn, lenders and mortgage providers will probably continue to include risk premiums in their rates.

About The Finance Committee Urges The Government to Prevent The RBC-HSBC Deal

The Finance Committee of the House of Commons has also recommended that the Minister of Finance reject RBC’s proposed acquisition of HSBC Canada. They argue that there is already limited competition in the Canadian banking sector and removing HSBC as a competitor could lead to higher banking fees for consumers.

HSBC is a significant player in Canada’s mortgage market, often offering competitive rates for various terms. The Competition Bureau approved the deal but acknowledged that it would reduce competition between Canada’s largest and seventh-largest banks.

RBC’s CEO, Dave McKay, sees the acquisition as a unique opportunity that would strengthen the bank’s offerings for commercial clients, newcomers to Canada, and affluent customers in need of global banking and wealth management services.

Wrapping Up

Mortgage providers in Canada have been reducing fixed mortgage rates in response to a significant decrease in bond yields. The 5-year Government of Canada bond yield, which typically affects fixed mortgage rates, has dropped by nearly 30 basis points and is currently at around 3.80%. This represents a decrease of over 60 bps from its high of 4.42% in October. Over a dozen national mortgage providers have lowered their rates by 10 to 30 bps, with most changes occurring in the 3- to 5-year terms. However, experts suggest that the rate cuts have not fully matched the decline in bond yields due to risk premiums.

Additionally, the House of Commons Standing Committee on Finance has recommended that the Minister of Finance reject RBC’s proposed acquisition of HSBC Canada. They argue that the deal would reduce competition in an already uncompetitive financial sector and potentially lead to higher fees for consumers. HSBC, as the 7th largest bank, is a key player and competitor in Canada’s mortgage market.

A survey of economists and analysts conducted by the Bank of Canada shows that many expect the bank’s first rate cut to happen by April 2024. Respondents expect a 25 basis point cut in April, with rates falling by a full percentage point in 2024. The survey also found that there is a 48% chance of a recession in the next six to 12 months, up from 40% in the previous survey. Regarding GDP growth, the survey shows that respondents project an average of 1% by the end of 2023, slightly increasing to 1.2% by the end of 2024. This aligns closely with the Bank of Canada’s official forecast of 1.2% average annual GDP growth in 2023, with a decline to .9% in 2024.

Information Of The Anticipating Initial Rate Cut

According to a recent survey conducted by the Bank of Canada, influential economists and analysts anticipate the Bank’s first rate cut to occur by April 2024. The survey, known as the Market Participants Survey, involved 28 financial market participants who were asked to provide their insights.

Based on the median survey results, the participants predict a 25 basis point cut in the Bank of Canada’s policy rate, beginning in April. This projection is a month later than what was anticipated in the Bank’s Q2 survey. Respondents further anticipate a full percentage point reduction in rates throughout 2024, which would effectively bring the overnight target rate down to 4.00%.

The survey also highlights that a median of respondents expect rates to decline by an additional half-point by Q1 2025, reaching 3.00% by Q3. It is noteworthy that three quarters of the respondents expressed their view that the risks surrounding their policy rate forecasts lean towards a higher trajectory. Nonetheless, all market participants are in agreement that the current cycle’s peak rate of 5.00% has already been reached.

In light of recent declines in bond yields, market forecasts for the central bank’s rate cuts have been adjusted, with approximately an 80% chance of a quarter-point cut by March 2024.

50/50 Chance of a Downturn

Moreover, the survey indicated a median expectation of a 48% probability of a recession occurring within the next six to 12 months. This figure represents an increase from the previous survey’s estimation of 40%. However, looking ahead to the next six months specifically, respondents perceive a slightly reduced chance of the economy falling into recession, currently at 40%.

Furthermore, the respondents’ projections suggest that GDP growth will average at 1% by the end of 2023, with a slight increase to 1.2% by the end of 2024. These figures are in line with the Bank of Canada’s official forecast, which anticipates an average annual GDP growth of 1.2% in 2023, subsequently decreasing to .9% in 2024.

Wrapping Up

According to a survey conducted by the Bank of Canada, influential economists and analysts predict that the central bank will make its first rate cut by April 2024. The survey, which involved 28 financial market participants, revealed that respondents expect a 25 basis point cut in the policy rate starting in April, a month later than the previous survey. The participants anticipate a full percentage point cut in 2024, bringing the overnight target rate down to 4.00%.

By the first quarter of 2025, respondents expect rates to fall another half-point and reach 3.00% by the third quarter. Despite the expectations of rate cuts, three quarters of respondents believe that the risks surrounding their forecasts are skewed towards a higher path. However, all market participants agreed that the current cycle’s peak rate of 5.00% has already been reached. Following a recent decline in bond yields, market forecasts for the central bank’s rate cuts have been adjusted, with an approximately 80% probability of a quarter-point cut by March 2024.

The survey also revealed that experts estimate a 48% chance of a recession occurring in the next six to twelve months, up from 40% in the previous survey. Over the next six months, respondents see a 40% likelihood of the economy entering a recession, down from 50%. The survey further indicates that GDP growth is expected to average 1% by the end of 2023, slightly increasing to 1.2% by the end of 2024. These figures align closely with the Bank of Canada’s official forecast of 1.2% average annual GDP growth in 2023, declining to .9% in 2024.

The Bank of Canada has decided to keep interest rates unchanged for the second time in a row, but expressed ongoing concerns about inflation risks and price pressures. The overnight target rate remains at 5.00%, and the Bank acknowledged that monetary policy is effectively curbing spending and alleviating price pressures, but it still wishes to see faster progress.

The Bank’s worries about slow progress towards price stability and increased inflation risks were also expressed, stating that it is prepared to raise the policy rate further if necessary. GDP growth forecasts were revised, and inflation forecasts were adjusted upward by the Bank. Despite today’s rate hold, more households will face higher interest rates and monthly payments as their mortgages come up for renewal.

The Details of The Rate Hold From Bank of Canada

The Bank of Canada made its anticipated decision to keep interest rates unchanged for the second time in a row today. However, the Bank expressed its ongoing concerns about inflation risks and price pressures.

As expected, the overnight target rate remained at 5.00%, meaning variable-rate mortgage borrowers will continue to face a prime rate of 7.20%.

In its statement, the Bank acknowledged that monetary policy is effectively curbing spending and alleviating price pressures, but it still wishes to see faster progress.

The statement continued to express the Bank’s worries about slow progress towards price stability and increased inflation risks, stating that it is prepared to raise the policy rate further if necessary.

Although improvements have been observed in inflation and underlying demand, economists believe it is too early for the Bank to relax its vigilant stance.

BMO’s Douglas Porter commented that price and wage growth are still too high for the Bank of Canada to veer from its hawkish rhetoric. Porter expects the Bank to maintain its current position until deep into 2024, especially without a significant rebound in growth, a surge in inflation, or a considerably weaker Canadian dollar.

TD Economics’ James Orlando agrees that the Bank of Canada is likely to keep its hawkish bias to achieve the projected economic slowdown. He noted that the Bank’s rhetoric has influenced a longer duration for its policy rate.

Consequently, the Government of Canada 10-year bond yield has reached its highest level since 2007.

GDP growth forecasts were also revised by the Bank of Canada in today’s decision, as the previous rate hikes’ effects begin to take hold. The Bank now estimates an average economic growth of around 1% for this year and next before gaining momentum again in 2025.

Inflation forecasts, on the other hand, have been adjusted upward by the Bank. Mortgage interest costs and high inflation in rent and housing expenses, along with slower normalization of near-term inflation expectations and corporate pricing behavior, have contributed to the upward revision. Core inflation measures show minimal downward movement.

Regarding household finances, despite today’s rate hold, more households will face higher interest rates and monthly payments as their mortgages come up for renewal. This is expected to impact activity and mitigate price pressures, possibly leading to rate cuts in mid-2024.

The Bank also acknowledged the impact of higher rates on overall household financial health. Measures of household financial stress have risen from pandemic lows as interest rates have increased. Non-mortgage holders are particularly affected by indicators of financial stress, and delinquency rates for various credit products, including auto loans, have increased.

The next rate decision from BoC will be held on December 6, 2023.

Wrapping Up

The Bank of Canada has decided to keep interest rates unchanged for the second consecutive time. However, the Bank remains concerned about inflation risks and price pressures. The overnight target rate will remain at 5.00%, resulting in a prime rate of 7.20% for variable-rate mortgage borrowers. The Bank believes that monetary policy is effectively curbing spending and alleviating price pressures but would like to see faster progress. It continues to worry about slow progress towards price stability and increased inflation risks and is prepared to raise the policy rate further if necessary.

Economists do not expect the Bank to relax its vigilant stance, as price and wage growth are still too high. The Bank’s hawkish rhetoric has influenced a longer duration for its policy rate, leading to the highest level of the Government of Canada 10-year bond yield since 2007.

The Bank has revised its GDP growth forecasts and now estimates an average economic growth of around 1% for this year and next. Inflation forecasts have been adjusted upward due to various factors, including mortgage interest costs, high inflation in rent and housing expenses, and slower normalization of near-term inflation expectations and corporate pricing behavior.

Despite the rate hold, more households will face higher interest rates and monthly payments as their mortgages come up for renewal, impacting activity and possibly leading to rate cuts in mid-2024. The Bank has also acknowledged the impact of higher rates on household financial health, with measures of household financial stress rising and delinquency rates increasing for various credit products. The Bank’s next rate decision is scheduled for December 6, 2023.

How to Qualify For a Mortgage in British Columbia

Learn how to qualify for a mortgage in BC – Buying a house is one of the most important decisions you will ever make. Making sure you are qualified for a mortgage in British Columbia is an important step before making that decision.

Mortgage Qualification in BC If you want to buy a house in British Columbia, there is a lot to consider. To qualify for a mortgage in BC, you need to have a down payment from either your own funds or from a loan, and you need to have a good credit score.

You can buy a house with a mortgage in BC in a variety of ways, but the most common mortgage is a fixed-rate mortgage. Fixed-rate mortgages in BC are structured in terms of upfront down payments and amortized payments.

The standard upfront down payment is usually around 20% or more. It depends on your income and savings. The standard amortized payment is set at 25 years.

How to Qualify For a Mortgage in BC – What Are Your Loan Options?

How To Qualify For A Mortgage in BC – One of the most asked questions from potential homebuyers is “what do I need to qualify for a mortgage?”.

There are a few things you will need to consider if you want to buy a home. The first thing you will need to do before you even begin your search for a new home is to make sure you qualify for a mortgage on the type of home you want.

There are different programs available for new buyers on first-time mortgages, previously owned homes, and newly-built homes.

When you’re trying to find your first home, it can be a little bit tricky. Finding a mortgage is especially challenging. Banks or credit unions, look for qualified borrowers. In order to qualify for a mortgage, you need to be earning an income and have a good credit history.

In BC, you can apply for a first mortgage from the BC Housing Mortgage Centre, Canada Mortgage and Housing Corporation, or an approved private lender. Banks and credit unions offer a number of mortgages including variable-rate mortgages, and fixed-rate mortgages.
If you’re a first-time homebuyer, you’ll likely need to discuss with them what type of mortgage is more suitable for you.

Pass a Credit Check

How To Qualify For A Mortgage in BC? In order to qualify for a mortgage in British Columbia, one must first pass a credit check.

People who have been living in British Columbia long enough can apply for a mortgage just by filling out a simple form. Banks and credit unions will need you to apply for a credit check with a credit bureau before being able to apply for a mortgage.

With a credit check, the goal is to show as many possible ways as possible to improve your score. It’s important to work on improving your credit score as much as possible so as to qualify for a mortgage in British Columbia.

Get a Good-paying Job to Pass an Income Verification

How To Qualify For A Mortgage in BC? The next thing to qualify for a mortgage in BC – Demonstrate the ability to make payments on time, and show that you have a stable source of income, in order to become eligible for a mortgage loan.

A first-time homebuyer should establish a good-paying job, and make sure to pass the income verification, among other things.

Credit Requirements

Experian suggests that you should show that you have no late payments to your credit card companies and no more than one month of negative marks on any installment loans.

Do You Have Enough Down Payment?

Planning to work towards saving up for a downpayment? Mortgage lenders require that you have about 20% downpayment, but sometimes may be more than 20%. Remember to get the best mortgage rates and save. Follow this article on how to qualify for a mortgage in BC.

Understanding Mortgage Qualification

A Guide to Qualifying for a Mortgage in BC

The rules for qualifying for a mortgage in British Columbia are different for each mortgage lender. Lenders will typically require borrowers to demonstrate income, provide documentation on the mortgaged property, and show affordability.

How To Qualify For A Mortgage in BC?

It can be difficult to understand all the rules for qualifying for a mortgage. But with the right lender, you can achieve your goal of buying a home.

Things to Look Out for When Applying For a Mortgage

• Look out for hidden fees
• Be prepared for rate changes (if you apply for a flexi-mortgage)
• Get mortgage pre-approval as soon as you can before looking for your dream home as the mortgage will make or break the deal

The first step to getting a mortgage is to figure out your max budget for monthly payments…

Government Resources For a Mortgage in BC

How To Qualify For A Mortgage in BC – There are many options that are available to homebuyers in British Columbia to help you qualify for a mortgage loan. In the article Getting preapproved for a mortgage, you can apply for a pre-approved mortgage here:

- banks
- caisses populaires
- credit unions
- mortgage companies
- insurance companies
- trust companies
- loan companies

The easiest way to ensure you are qualified is by applying for pre-approved financing. This eliminates the need to visit multiple banks and spend hours filling out paperwork when you found your dream home. You can find pre-approved financing options online, through your local bank branch, or over the phone.

The process of qualifying for a mortgage in BC is dependent on a number of factors, such as if the borrower is a first-time homebuyer, the amount of cash they have saved for a down-payment and whether their income is sufficient to cover their mortgage repayments.

Canadian lenders use the mortgage’s gross debt-to-income ratio as a way to measure the borrower’s ability to repay their mortgage. This ratio measures the amount of money left over after all monthly expenses and debt payments, and at what point that person becomes unable to meet their mortgage repayments.

Apply for a pre-approved mortgage now if you plan to buy your dream home. Follow the guidelines in How To Qualify For A Mortgage In BC and What is The Mortgage Stress Test In Canada.

Today, I am going to talk about what is the mortgage stress test in Canada.

What is the Mortgage Stress Test in Canada? The federal government has put in place a mortgage stress test in Canada in an effort to help Canadians manage debt loads.

The result is that lending by federally regulated financial institutions must require a borrower to meet a certain threshold when it comes to how they are able to pay back their mortgage in the event of any kind of increased interest rates, increased loan amount, or any change in economic circumstance.

A borrower’s capacity to afford a mortgage in the future is calculated by looking at how much they earn in their current job, any outside income, the climate they live in, and the size of their down payment.

The federal government provides some guidelines when it comes to the calculation, but lenders also have their own mortgage stress tests that they need to follow.

Canada’s federal government is mandating, after consultation with the insurance and banking sectors, a mortgage stress test to help reduce the risk of a housing bubble and irresponsible borrowing.

What is a Mortgage Stress Test?

What is the Mortgage Stress Test in Canada? First, let’s start with understanding what a mortgage stress test is. A mortgage stress test is a financial requirement that banks require potential home buyers to pass before they are able to complete the purchase of a home.

It is done in order to verify that the buyer can afford their mortgage payments even when interest rates are higher. The stress test is often used by the lender to make sure that the buyer’s monthly housing costs will not exceed thirty-seven percent of the monthly pre-tax household income.

To pass the mortgage stress test in Canada, your bank will ask you for “proof of income”. This might be a pay stub, tax returns, investment statements, or social assistance program benefits. It’s important to be honest about your income when you’re applying for a mortgage or renewing your current mortgage because this is when they do a calculation to determine what you can afford.

In Canada, banks have been required to perform a mortgage stress test on clients since January 1, 2018. More specifically, this is a “stress test” in which a bank needs to determine a person’s ability to pay back a loan, by qualifying the mortgage loan. To do this, they will ask for a person’s “proof of income” – the most recent tax return, your recent pay stubs.

Why Was the Mortgage Stress Test Introduced?

What is the Mortgage Stress Test in Canada? The introduction of the mortgage stress test has been introduced to ensure the cost of your mortgage is more affordable.

Canada’s federal government introduced the stress test in an effort to protect buyers from taking on more debt than they can realistically afford, as well as to ensure that the Canadian residential real estate market stays on a sound, sustainable footing.

The mortgage stress is also to ensure that home buyers are not getting into mortgages that they will not be able to afford over the long term. The mortgage stress test ensures that home buyers can afford their mortgage payments, even if rates rise or their income drops.

The lender will review the borrower’s financial situation for the last two years, including employment income and residential history, and apply a maximum qualifying rate.

How Does a Stress Test Work?

What is the Mortgage Stress Test in Canada? A stress test on a mortgage is a complicated set of financial calculations. It is designed to ensure that the mortgage will be repaid in full on or before the maturity date if the average of the best five years of the borrower’s annual income decreases suddenly – for example, if the borrower lost their job.

The mortgage stress test is a recent addition to the mortgage qualification criteria. The stress test was introduced to Canada by the Office of the Superintendent of Financial Institutions (OSFI) in late 2017, early 2018. At the time, the mortgage stress test required that any new mortgages meet at least the minimum federal benchmark rate.

The current version of the mortgage stress test, which came into effect on June 1, 2021, benchmark rate + 2% or 5.25%. whichever is higher. For more information, you may check out the article here.

How Does a Stress Test Affect You?

What is the Mortgage Stress Test in Canada? It is important to know how the stress test can affect you. It may have an effect on your down payment requirement, the type of mortgage you are able to get, and the type of home you can afford.

For a number of years, the real estate market was going up and buyers could get mortgages with less and less skin in the game. In 2017 that all changed. A mortgage stress test was introduced that has choked the available mortgage dollar, sending it to a trickle. Mortgage lenders have been able to withstand the brunt of the stress test.

In areas where real estate prices have been rising, the stress test has made it tougher for buyers to qualify for a mortgage. Without a qualifying mortgage, the home buying process is stalled until a buyer can come up with a down-payment.

Conclusion about the Mortgage Stress Test in Canada

What is the Mortgage Stress Test in Canada? The mortgage stress test is a measure that Canada introduced to prevent home buyers with a high borrowing capacity from over-extending themselves.

The mortgage stress test is a new process that lenders will use to determine what can be borrowed for a mortgage. The stress test limits the size of the loan that the borrower qualifies for by comparing the home-buying costs (mortgage, insurance and taxes) with the borrower’s ability to pay (adjusted gross income, other debts and “discretionary” income). The stress test was implemented as a safeguard against housing market bubbles and inflation.

The stress test is a type of mortgage approval and it was designed to assess the ability of the borrower to meet mortgage commitments under an economic stress scenario of increased unemployment or decreased incomes.

Are you ready to buy a house? Head over to How To Qualify For A Mortgage In BC to check out if you are ready to get a pre-approved mortgage.