The STRESS TEST - What are we talking about?
Normally when we talk about a Stress Test we are talking in medical terms about the stress on your heart during physical exercise, but the Government of Canada has implemented a financial Stress Test that will start on January 1, 2018 for the purchase and refinancing of homes.
What is a financial Stress Test?
You will hear much more about this test in the coming months but to bring you up to date the Stress Test is designed to insure that if interest rates do climb higher you will be able to handle modest increases in mortgage payments.
Do I have to undergo a Stress Test?
Yes, the mortgage professionals will be required to Stress Test your income if your down payment is at or above 20% of the purchase price.
Why is it being implemented?
In the USA in the 1990’s and 2000’s mortgages were granted with little hope of repayment if interest payments were to move higher. Many people in the US were forced to lose their homes because at some point they were unable to continue making the mortgage payments when interest rates rose.
How big is the Stress Test? An additional 2% would be added to your payment at your current, normal rate of interest to see how this would financially affect you.
Do I have to pay the extra 2%. No
Do I have to qualify for the extra 2%. Yes
From a practical standpoint how will this effect me getting a mortgage?
That will be based on your individual financial position. The Government of Canada wants to insure that you have some flexibility in your financial situation should interest rates change in the future.
In the second installment of the the Stress Test we will look at how to avoid the Stress Test, What it will mean in practical terms.
I am also happy to meet for a cup of tea or coffee to discuss your questions and concerns and how this may affect you.