Mortgage Stress Test Changes are now on hold.

Effective April 6, 2020 the federal government is amending the figure used to stress test high ratio mortgages (borrowers with less than 20% down payment requiring mortgage insurance). Beginning April 6 there will be a new median interest rate plus 2% set for qualification purposes for borrowers with less than 20% down. The new proposed median interest rate will be adjusted to better reflect current interest rates and will replace the current 5.19% benchmark rate.

Buyers with 20% or greater down payment will still be subject to qualifying at the greater of benchmark rate (currently 5.19%) or their actual mortgage rate plus 2% a policy that was implemented in January 2018.  Prior to implementation of the Stress Test in October 2016, all mortgages, regardless of the down payment were qualified based on the contract rate which is your actual mortgage rate.

On April 6, 2020, we will begin to use the median interest rate plus 2% for qualification purposes on highratio mortgages only. The new median interest rate will be set weekly and adjusted to better reflect current interest rates.  As an example, with a current interest rates of 2.74% we are expecting to see the qualifying rate set in the vicinity of 4.74%.  This new qualifying rate will increase your purchasing power by about 3%.  While this is not a significant amount it is a step in the right direction.

The positive being this is the first decrease in the Stress Test since it was first introduced in October of 2016.  Linking the stress test rate to a median interest rate will better reflect the actual mortgage rates and provides a somewhat more realistic valuation for qualification.  The decrease does not apply to conventional mortgages (20% or greater down) at this time, however, current speculation is that it is under consideration we will see a change for conventional mortgages in the near future.

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