Insured and Uninsured Mortgage Stress Test Changes Confirmed for June 1, 2021

Starting June 1st, both insured and uninsured mortgage borrowers will be subject to a stricter stress test when qualifying for their mortgage.

The Office of the Superintendent of Financial Institutions (OSFI) confirmed on Thursday that it will move ahead with its stress test changes first announced last month, which will apply to uninsured mortgages (typically those with more than a 20% down payment).

Soon after, the Department of Finance confirmed it will follow OSFI’s lead, and apply the same stricter higher qualifying rate to insured mortgages, or those with less than 20% down.

In both cases, borrowers will need to prove they can afford payments based on the higher of the contract rate plus 2%, or a new floor rate of 5.25%, up from the current 4.79%.

The Impact on Borrowers

Applying the higher stress test to insured borrowers will impact roughly 1 in 5 mortgage borrowers, according to data from the Bank of Canada. It will also take direct aim at first-time borrowers who are more likely to be putting less than 20% down on a mortgage.

The higher minimum stress test is expected to cut maximum buying power by between 4% and 4.5%. For a median-income household, that would reduce the maximum purchase price from $442,000 to $422,000, according to previous estimates from National Bank.

STRESS TEST COMPARISON

Current 4.79% Stress test

$100,000 income

20% down payment ($128,000)

Purchase price of $640,000

Mortgage of $512,000

With 5.25% Stress test rate, will require $104,000 income

5.25% Stress Test Rate

$100,000 income

20% down payment ($122,000)

Purchase price of $610,000

Mortgage of $488,000