Are You Prepared to Stress Test Your Mortgage Debt?

If you’re taking out a new mortgage in 2018, you won’t have a choice. The government has put out new mortgage rules that require a stress test for all mortgages—currently, a stress test is only required for people making less than a 20 per cent down payment. This could limit the amount of mortgage debt that’s available to many borrowers, and be a factor in to how much house you could afford.

What does this mean for me?

Basically, you need to ask yourself whether you could still afford your home if interest rates rise by two per cent. Under the new rules, your mortgage will be stress tested at either the Bank of Canada (BoC) five-year mortgage rate, or at a rate two percentage points higher than what you’re being offered, whichever is higher. This does not apply if you’re renewing your mortgage—but only if you’re using the same lender.

If you renew your mortgage with the same lender, it won’t need to be stress-tested. #DebtSolutions Click To Tweet

It pays to shop around, but it helps to set more aside

Right now, the BoC mortgage rate is 4.89 per cent. While you might not find a five-year mortgage rate a full two per cent lower, many lenders are offering mortgages with rates between three and 3.5 per cent.

Online debt calculators can help you figure out what you would owe at a higher rate. Most of the banks have their own mortgage calculators, but CIBC’s is the best one we’ve seen. Their calculator clearly shows how much mortgage debt you can borrow, and how much you could afford to spend on a home. It also allows you to adjust your down payment if your stress test shows you taking on too much debt.

How to manage your mortgage debt load

If you’re taking out or renewing your mortgage, you’ll also want to look at your consumer debt. How much do you currently owe on credit cards, lines of credit and car loans? Is there any way you can reduce this debt to make your mortgage payments more affordable?

If you’re looking to reduce consumer debt, our repayment options calculator shows you what your monthly payments would be using different debt solutions. Adding these amounts to your mortgage payment will give you a good idea of how much debt you would have to repay each month.

Ready to get started? Find out all your options to reduce debt on our Debt Relief Options page.